Fine Tune Your FAA Filings

Registration of Aircraft by a Limited Liability Company

A. 1995 FAA Aeronautical Center Counsel’s Memorandum regarding LLCs. In 1995, the Assistant Chief Counsel for the Aeronautical Center ("ACC") issued an internal memorandum (the "1995 ACC Memo") which, generally, approved the use of LLCs for the purpose of aircraft registration. The ACC indicated that the appropriate citizenship test for an LLC would be the same as that used for an "unincorporated association" as defined in the FAA Federal Act. The 1995 ACC Memo indicated that an LLC should file its Certificate of Formation (or equivalent). The issue of who can sign documents on behalf of the LLC was left open: "Competent signature parties can be determined by examining the pertinent state's limited liability act."

So, an LLC can register an aircraft in its name if it is a United States citizen. The test applicable to unincorporated associations -- a three-part test -- is very similar to the test applicable to corporations:

n Formation - the LLC must be formed in one of the states of the United States.

n Management - The basic test is: (i) the president, if one, must be a United States citizen; (ii) at least two-thirds (2/3rds) of the managers, or managing officers, must be US citizens, and (iii) at least two-thirds (2/3rds) of the board of directors, or its equivalent, must be US citizens. Practicalities of this part of the test include:

(1) If the LLC has one manager, he, she or it must qualify as a citizen of the United States.

(2) If the LLC has multiple managers, at least 2/3rds must be citizens of the United States (management can be reserved to a corporation or partnership as long as such entity qualifies as a United States citizen).

(3) If there is an equivalent of a board of directors, at least 2/3rds of its members must be citizens of the United States.

(4) If the LLC appoints "officers" (i.e., president, vice president, etc.) the president and 2/3rds of the other officers must be individual citizens of the US. This is based on the specific language of 14 C.F.R. §47.2.

(5) If the LLC appoints officers, but the Operating Agreement does not identify those officers, you may need to submit a certificate or resolution from the appropriate parties (i.e., members and/or managers) evidencing the appointment and authority of those officers to sign for the LLC.

n Ownership and control - At least 75% of the voting interest of the LLC must be vested in US citizens (typically, vested in the "members").

B. Efforts at Clarification. The ACC issued another memorandum in 1999 (the “1999 ACC Memo”) in an effort to simplify and clarify issues relating to the registration of aircraft by LLCs. It concluded that the determination of citizenship of LLCs should continue to be handled on a case by case basis and that some form of documentation to support citizenship should be submitted to the ACC and/or the FAA Registry to support the assertion that an LLC qualifies as a citizen of the United States (i.e., this continues the policy that LLCs will be treated differently than any other applicant for registration of aircraft, i.e. corporation, partnership).

The 1999 ACC Memo provides that an LLC can submit the following to support an application for registration:

n File the Certificate of Formation and Operating Agreement with the ACC and request an opinion, or file a Statement in Support of Registration with the FAA or ACC.

n The ACC will issue an opinion based on the Statement (maybe – see below).

n The FAA Registry may register an aircraft in the name of an LLC based solely on the filing of a Statement or it may refer the matter to the ACC for advice and guidance.

n If the LLC is owned by a sole individual member and managed by an individual manager, the FAA Registry will process it. Almost everything else may be referred to the ACC.

C. 1999 FAA Registry Memorandum. Shortly after the ACC issued its 1999 ACC Memo, the FAA Registry issued a memorandum setting forth the information it would require in a Statement in Support of Registration, as follows:

n Full name of the LLC

n State of formation of the LLC

n Effective date of LLC

n The name of each member of the LLC and the type of entity

n Whether the LLC is managed by members, managers, officers or some other form

n Whether the individuals or entities which manage the LLC can act independently

n The name of the managing entity and type of entity

n A description as to how each legal entity within the LLC structure supports a determination that the LLC qualifies as a US citizen as defined in the Act.

See Appendix A for a suggested form of LLC Statement in Support.

D. Who Should Sign Documents filed at the FAA?

n The appropriate party to sign documents on behalf of the LLC is typically governed by the LLC's Operating Agreement (and sometimes the Certificate/Articles of Formation).

n As a practical matter, the FAA will always accept the signature of "manager" on behalf of an LLC without further inquiry. However, signature by a manager must be supported by the LLC organizational documents. Currently, the FAA will also accept a traditional corporate title such as "president, vice president" etc.

n Note: "member/manager" is often not an acceptable title, unless provided for in the relevant LLC organizational documents.

n If the documents filed at the FAA on behalf of an LLC are signed by a member or any person other than a "manager" or traditional corporate officer, the FAA requires additional documentation to support that signature.

n The FAA used to require the submission of the Operating Agreement or other documentation to evidence the fact that an individual is authorized to sign on behalf of the LLC.

n Now the issue of who can sign on behalf of the LLC can be handled in the Statement in Support of Registration; however, if the LLC structure is complicated or the Statement is inconsistent, the FAA may require the submission of the Operating Agreement (or additional documentation).

n If the Operating Agreement does not cover the signature in question, you may have to submit a resolution or certificate signed by the appropriate person(s) (i.e., whoever is given the power to make an appointment in the LLC documents) which appoints the relevant person as an officer, agent, whatever.

E. Documents to be filed at the FAA to support Aircraft Registration in the name of an LLC.

Before Closing. Submit a Statement in Support of Registration, Certificate of Formation and Operating Agreement to the ACC and request its opinion approving registration of the aircraft in the name of the LLC. Be sure to ask the ACC to send its internal checklist memorandum to the FAA Registry with regard to the citizenship of the LLC and who can sign for the LLC. Note that the ACC is reluctant to issue an opinion based solely on the Statement in Support of Registration, so it is better practice to provide copies of the Operating Agreement and Certificate of Formation.

At Closing. File a Statement in Support of Registration at the FAA Registry and advise the FAA that the LLC has been approved by the ACC.

If there is any doubt about signatures or the clarity of the Statement in Support of Registration, consider filing the Operating Agreement and any other documents necessary to evidence that documents filed on behalf of the LLC are signed by the appropriate parties (e.g., if officers are signing, have a resolution from the members appointing the officers).

If the client is not concerned about the confidential nature of the Operating Agreement, file a copy with the FAA at the same time [note that all of the documents, whether filed or not, should be consistent (i.e., the Certificate of Formation, Operating Agreement and Statement in Support of Registration) and they rarely are].

F. LLC as lessee: What if the LLC is a lessee only, instead of applying for registration of an aircraft?

n The FAA does not care about US citizenship of a lessee LLC (unless the lease is considered a conditional sales contract), but it does care about who signs on behalf of the LLC.

n If the signer is a manager or someone with a traditional corporate title, the FAA will accept such signature without additional documentation (however, it is always good to get a Statement in Support of Registration regardless, as LLCs are still treated inconsistently by FAA examiners).

n If the signer of the lessee LLC is a member or someone with a title that is currently not acceptable to the FAA, then you should also submit a Statement in Support or Operating Agreement, evidencing the authority of the signatory to bind the LLC.

G. Ownership Issues

Can a partnership which is composed of corporations own 25% or more of the voting interest of the LLC? Yes, as long as the partnership is ultimately owned and controlled by "citizens of the United States." (Note: BUT see the section below regarding management.)

Can a resident alien own 25% or more of the voting interest of the LLC? No. While a resident alien can register an aircraft in her name, she does not qualify as a "citizen of the United States" and, therefore, cannot own 25% or more of an LLC.

Can a corporation which qualifies under Section 47.9 (based and primarily used registration) own 25% or more of the voting interest of the LLC? No. While such a corporation can register an aircraft in its name, it does not qualify as a "citizen of the United States" and, therefore, cannot own 25% or more of an LLC.

H. Management Questions

Can a partnership that is composed of corporations, and that is ultimately owned and controlled by US citizens, act as a sole manager of an LLC? No, because such a partnership does not qualify as a "citizen of the United States."

Solution: If the LLC otherwise passes the citizenship tests, you can replace the partnership with a US citizen manager, or appoint enough managers so that at least 2/3rds of the LLC's managers are US citizens.

Can a resident alien be the sole manager of the LLC? No, because a resident alien does not qualify as a "citizen of the United States."

Solution: Same as above.

Can a §47.9 (based and primarily used registration) corporation act as the sole manager of an LLC? No, because a §47.9 corporation does not qualify as a "citizen of the United States."

Solution: Same as above.

I. Available Options if an LLC structure fails any of the US Citizenship Tests

1. If an LLC fails the "organization" test, the only available option is to transfer title to the aircraft to an owner trustee who holds title for the benefit of the LLC.

2. If the LLC fails the "management" test:

n Change managers so you meet the test.

n Transfer title to the aircraft to an owner trustee who will hold title for the benefit of the LLC and register the aircraft in the name of the owner trustee.

3. If the LLC fails the "ownership/control" test:

n Transfer title to the aircraft to an owner trustee who will hold title for the benefit of the LLC and register the aircraft in the name of the owner trustee.

n Create a trust for the offending entity and transfer the offending ownership interests in the LLC to a trustee who is a citizen of the US.

n NOTE: A voting trust under §47.8 is not available for the voting interests of an LLC (by regulation, voting trusts under §47.8 are available only to corporations). However, if the owner of the LLC is a corporation which passes all citizenship tests except has foreign ownership/control, then a voting trust can be used for that corporation. In this event, the LLC would qualify as a US citizen and could register an aircraft in its name, however, the ACC will not issue an opinion under §47.8 with regard to registration of the aircraft in the name of the LLC.

n NOTE: “Based and primarily used" registration of an aircraft under § 47.9 of the FAA regulations is NOT AVAILABLE to LLCs. The use of §47.9 for the registration of aircraft is limited to corporations.

Importing and Exporting Aircraft

Registering Aircraft with the FAA Registry (i.e. importing aircraft)

A. Newly manufactured aircraft that have never been on the FAA Registry:

Pertinent Regulations: Sections 47.33 and 47.15(a)(1) of the FARs and Section 2.3.4 of the FAA Internal Examination Guidelines.

Documents needed:

n Notice from country of manufacturer that aircraft has never been placed on the registry of that country.

n Bill of sale or other evidence of ownership.

n AC Form 8050-1 Aircraft Registration Application.

B. Aircraft that have never been on the FAA Registry but are registered in another country:

Pertinent Regulations: Section 47.37 of the FARs.

Documents needed:

n If the country in which the aircraft was registered has not ratified the Convention on International Recognition of Rights in Aircraft, then provide a notice that the registration has ended or is invalid; or, if the country has ratified the Convention, provide a notice that the foreign registration has ended or is invalid and that each holder of a recorded right against the aircraft has been satisfied or has consent to the deregistration.

n Bill of sale from a “foreign seller” or other evidence satisfactory to the FAA that the applicant owns the aircraft.

n AC Form 8050-1 Aircraft Registration Application.

C. Aircraft that were moved from the FAA Registry to a foreign registry and are being re-registered with the FAA by the same owner:

Pertinent Regulations: FAA Internal Examination Guidelines, Section 2.3.6.

Documents needed:

n Notice of deregistration by the exporting country (the content of the notice depends on the Convention status of the exporting country – see above).

n Affidavit of Continuous Ownership by the owner of the aircraft (the affidavit must refer to the bill of sale on file with the FAA whereby the owner took title to the aircraft and also summarize the whereabouts of the aircraft since that time to the date of the affidavit).

n AC Form 8050-1 Aircraft Registration Application.

General comments:

The Deregistration Notice:

n A deregistration notice must contain clear language that the aircraft is and has been deregistered by the exporting country. Such deregistration cannot be subject to contingencies or conditions.

n The deregistration notice must describe the aircraft with sufficient detail to identify it (description by manufacturer, model and serial number is preferred).

n The deregistration notice must be in English. If the notice is not, then the FAA will submit the notice for translation, which will delay registration and issuance of a Temporary Certificate of Aircraft Registration.

n NOTE: Deregistration notices from Mexico – In the past, the FAA has received fraudulent deregistration notices of aircraft registered in Mexico. As a result of these problems, the FAA and Mexico have agreed that only deregistration notices signed in ink by specifically identified employees of the Mexico DGAC and sent directly from Mexico to the FAA will be accepted. Thus, faxed copies of deregistration notices from Mexico are NOT acceptable.

Timing of registration by the FAA:

n The FAA has indicated that if the necessary paperwork to register an aircraft is filed with the FAA prior to11:00 a.m. central time, they will use their best efforts to register the aircraft by the end of the same working day (4:00 p.m. central time). This applies to aircraft that have NEVER been on the FAA Registry, i.e. aircraft that do not have “prior records” at the FAA.

n To speed up the registration process, you can file a request to have an N-number assigned to the aircraft, as long as you certify that you will not paint the N-number on the aircraft until the foreign registration of the aircraft has ended.

n It is very helpful to have a copy of the deregistration notice faxed to your local FAA counsel to review to ensure that the notice will be acceptable to the FAA, or to start the translation process, if necessary.

Titles on foreign bills of sale:

n Bill of sale or other evidence of ownership – Many times a bill of sale is signed by a foreign seller with a title not acceptable to the FAA (i.e. attorney in fact is the most common). In this event, the FAA will generally accept the bill of sale as “other evidence of ownership” which will support registration of the aircraft in the name of the buyer. The FAA will place the bill of sale in the aircraft records but the bill of sale will not be recorded (i.e., because the title is not acceptable to the FAA, the bill of sale is not a “recordable” instrument under the FAA Act).

The FAA Registry goal regarding imports:

n FAA Internal Examination Guidelines – The guidelines specifically provide that every effort should be made to cooperate with the applicant for registration of an imported aircraft and that documents should be reviewed carefully “for ways to accept rather than to reject” the documentation. The FAA is aware of the time sensitivity of importing aircraft and will work with the applicant to get the aircraft registered as quickly as possible.

Other issues:

What title protections does a notice of deregistration from the exporting country give a purchaser of an aircraft?

n A deregistration notice is NOT A GUARANTY that the aircraft is free and clear of liens and encumbrances.

n Some purchasers will rely on the notice of deregistration from a country which is a party to The Convention on the International Recognition of Rights in Aircraft as an indication that title to the aircraft is clear and that there is no need for a title or lien search in the exporting country – this is incorrect for many reasons:

o The Convention only deals with contractual rights and, therefore, a notice of deregistration would not address tax liens, mechanic’s liens or other liens which are created by local law (e.g. repair or storage liens, etc.).

o The foreign registry may make a mistake in reviewing its records or the deregistration may be the result of fraud or error.

o Many countries are not parties to the Convention and, therefore, their deregistration notices mean only that foreign registration of an aircraft has been canceled. The deregistration notices have nothing to do with the status of liens, encumbrances or claims against the aircraft. Noted countries that are not parties to the Convention are:

Canada

Mexico[1]

United Kingdom

Japan

Spain

Portugal

n A deregistration notice has nothing to do with who actually holds legal title to the aircraft. You must independently determine the owner of the aircraft and who can convey good, valid title.

n Beware--the registered owner of the aircraft in many foreign countries is the "operator" of the aircraft, not the true owner of the aircraft.

n If the deregistration notice is not communicated directly by the foreign registry to the FAA by the AFTN system (an internal communications system used by aircraft registries) or by overnight courier, the notice may be the product of fraud or forgery.

n The deregistration notice provides no information with regard to who actually owns the Aircraft.

n If a country is not a party to the Convention, a lien holder CAN ENFORCE its interest in an aircraft in the United States. The fact that a country is not a party to the Convention simply means that the Convention does not govern the rights pertaining to the aircraft. Although it is a complicated issue, the United States and almost all countries respect and recognize laws of a foreign country as long as those laws do not conflict with the laws and/or public policy of the United States.

Closing over International Waters:

n Generally tax driven

n Results in illegal operation of aircraft

- At the time the sale of an aircraft closes, the old registration ends. 14 CFR §47.41.

- The FAA Act and international treaties require that for an aircraft to fly in international air space, it must have an "effective" Certificate of Aircraft Registration on board the aircraft.

- The “pink copy” of the Aircraft Registration Application does not equal registration; it is merely temporary authority to operate the aircraft in the United States pending registration of the aircraft.

- Could this illegal operation have an adverse impact on insurance coverage?

Deregistration (i.e. exporting)

A. Regulatory references: Deregistration is governed by the Convention on the International Recognition of Rights in Aircraft and FAR Sections 47.41 and 47.47.

B. What equipment is covered: Aircraft (i.e. an airframe – engines and propellers are not “registered” with the FAA) may be removed from the FAA Registry (i.e. deregistered) when the aircraft is exported, destroyed, salvaged, dismantled or permanently retired from service.

C. Documentation required:

1. Letter addressed to the FAA executed by the last registered owner, requesting deregistration of the aircraft for export to an identified country.

n The signature must contain a title acceptable to the FAA (if the owner is a corporation, partnership or LLC).

n A copy of the letter is acceptable – THIS IS ONE OF THE FEW DOCUMENTS OF WHICH THE FAA WILL ACCEPT A FAXED COPY, INSTEAD OF AN INK-SIGNED ORIGINAL.

n If the aircraft is being sold to a non-US citizen and the bill of sale to such non-US citizen is being filed with the FAA, then the request to deregister may come from the last registered owner or the foreign purchaser.

2. Recorded, unreleased security agreements (i.e. consensual liens): FAA Release (ink-signed) executed by any secured party of record, with regard to unreleased, recorded security agreements OR letter by the secured party consenting to the deregistration (this document can be a fax). Certificates of repossession can also be used as a “release” of consensual liens, such that releases or consents by junior lien holders will not be required.

3. Recorded lease agreements with six months or more left on the term (i.e. consensual liens): FAA Lease Termination executed by lessor and lessee (ink-signed) OR letters by the lessor and lessee consenting to the deregistration (these documents can be faxes). Certificates of repossession can also be used for leases which have not expired, such that lease terminations or consents will not be required.

D. FAA process and timing of deregistration – The FAA is required to do an independent examination of the FAA records covering the aircraft to determine what liens and encumbrances are outstanding and whether appropriate releases, terminations or consents have been obtained in order to deregister the aircraft. The FAA Guidelines provide that the goal of the Registry is to process requests for export “within three working days after receipt” of the deregistration request. Therefore, it is important to plan for this delay between filing the deregistration request with the FAA Registry filing window and receipt of the deregistration notice by the FAA.

Once the FAA has officially deregistered the aircraft, the FAA will send notice of such deregistration to the country of import and will provide written notice to the law firm or title company assisting with the deregistration, but only if the assisting party requests that a copy of the notice be provided to it. The deregistration notice will contain a statement that the aircraft has been deregistered as of a particular date and time, and a statement that the aircraft is free and clear of liens and encumbrances of record or, if not, that consents have been obtained from the holders of any liens and encumbrances, and the names of such parties. The notice will usually NOT include the name of the last registered owner. If this is required by the importing country, then a special request should be made to the FAA so that such information is included in the deregistration notice.

With regard to an aircraft which has been destroyed, or is being salvaged, dismantled or permanently retired from service, the FAA will process such deregistration request in the normal course of business; these requests will not be accorded priority and will not be processed on an expedited manner (i.e. it may take 3-6 weeks to obtain the deregistration notice).

E. The effect of mechanics’ liens on the deregistration process. Generally, mechanics’ liens are not considered to be “consensual liens” like security agreements and leases. Therefore, an unreleased mechanic’s lien will NOT impede deregistration of an aircraft and a consent to deregistration or release by the lien holder is not required. NOTE, HOWEVER, if the mechanic’s lien is also signed by the owner, and contains language which could be construed as granting a lien on the aircraft by the owner, then such lien may be considered by the FAA as consensual in nature, requiring a release or consent prior to deregistration.

Synthetic Leases and Aircraft Registration

A. Question: Who should be the registered owner of an aircraft? -- Regulatory Basis

14 CFR 47.5(b) – An aircraft may be registered only by and in the legal name of its owner.

14 CFR 47.5(d) – In this part, “owner” includes a buyer in possession, a bailee, or a lessee of an aircraft under a contract of conditional sale, and the assignee of that person.

49 U.S.C. § 40102(a)(18) – “Conditional sales contract” means a contract –

(A) for the sale of an aircraft, aircraft engine, propeller, appliance, or spare part, under which the buyer takes possession of the property but title to the property vests in the buyer at a later time on –

(i) paying any part of the purchase price;

(ii) performing another condition; or

(iii) the happening of a contingency; or

(B) to bail or lease an aircraft, aircraft engine, propeller, appliance or spare part, under which the bailee or lessee –

(i) agrees to pay an amount substantially equal to the value of the property; and

(ii) is to become, or has the option of becoming, the owner of the property on complying with the contract.

B. Leiter Letter (55 Fed. Reg. 192, Oct. 3, 1990)

1. The Leiter Letter is the guideline used by the Aeronautical Center Counsel’s Office in issuing opinions as to registration of aircraft subject to leases with purchase options.

2. Under the Leiter Letter, the lessee will be considered the registered owner of an aircraft under a lease with a purchase option if:

(i) The purchase option price is 10% or less of the value of the aircraft determined at the time the lease is executed, OR

(ii) The purchase option price is above the 10% bright line test, but the lease contains a requirement that if the option is not exercised, the lessee nevertheless is obligated to pay a residual value or termination sum equal to or exceeding the purchase option price; OR

(iii) The purchase option price is higher than 10% and there is no mandatory full payout if the option is not exercised, but the option price is less than the lessee’s reasonably predictable cost of performing under the lease agreement if the option is not exercised.

In addition to the above, the lessee must also have the obligations of maintenance, insurance, taxes, operations and risk of loss, and the lessee may not unilaterally terminate the lease without economic penalty.

C. A lease designated by the parties as a “synthetic” lease

1. A lease designated by the parties as a “synthetic” lease will most likely result in a determination by the Aeronautical Center Counsel’s Office that registration of the aircraft should be in the name of the lessee. Due to the inherent nature of a synthetic lease transaction, the Aeronautical Center Counsel’s Office is predisposed to finding that registration should be in the name of the lessee.

D. Effect of Registration on Legal Title

1. It is important to remember that regardless of the determination by the Aeronautical Center Counsel’s Office as to who should be the registered owner, registration alone is NOT evidence of ownership.

49 U.S.C. § 44103(c) Certificates as Evidence –

A certificate of registration issued under this section is –

(1) conclusive evidence of the nationality of an aircraft for international purposes, but not conclusive evidence in a proceeding under the laws of the United States; and

(2) not evidence of ownership of an aircraft in any proceeding in which ownership is or may be in issue.

14 CFR § 47.5(c) – [The FAA Act] provides that registration is not evidence of ownership of aircraft in any proceeding in which ownership by a particular person is in issue. The FAA does not issue any certificate of ownership or endorse any information with respect to ownership on a Certificate of Aircraft Registration. The FAA issues a Certificate of Aircraft Registration to the person who appears to be the owner on the basis of the evidence of ownership submitted pursuant to §47.11 with the Application for Aircraft Registration, or recorded at the FAA Aircraft Registry.

E. Mechanics of filing a synthetic lease with the FAA Registry

1. Submit a draft of the synthetic lease, with all schedules, exhibits, etc., to the Aeronautical Center Counsel’s Office for review at least 3 to 4 days prior to closing. If the synthetic lease is more complicated than usual, then more time should be given to the Aeronautical Center Counsel’s Office to review the document.

2. The FAA Registry will only record an originally executed counterpart of the synthetic lease (a copy of the executed lease will not be recordable).

3. Any confidential, proprietary information of the parties may be moved to a schedule or exhibit to the synthetic lease (i.e., agreed value, rent, termination values, return conditions). The schedules or exhibits may then be omitted from the FAA filing counterpart of the lease so that such information remains confidential and not of public record. When in doubt if information to be omitted is of a “confidential and proprietary” nature, a request should be submitted to the Aeronautical Center Counsel's Office for review and approval of the information to be omitted (see Opinion of the FAA, 59 Fed. Reg. 48463, Sept 21, 1994, Recordation: Treatment of Instruments With Proprietary Information Intentionally Omitted).

F. Other Considerations

1. With a synthetic lease that is treated by the FAA as a Conditional Sales Contract (i.e., registration of the aircraft will be in the name of the lessee), you must ensure that the lessee qualifies as a “citizen of the United States” under 49 U.S.C. §40102(a)(15). If not, the lessee may have to enter into an owner trust arrangement whereby the owner trustee would be the lessee under the synthetic lease.

2. The FAA requires that the lessor have evidence of title immediately prior to entering into the synthetic lease transaction. Therefore, prior to filing the synthetic lease with the FAA Registry, a bill of sale will need to be filed whereby title to the aircraft is conveyed to the lessor, even though registration of the aircraft will be in the name of the lessee. This is true even if the lessee is the owner of the aircraft immediately prior to the synthetic lease transaction.

3. At the end of the lease transaction, in order to clear the FAA record, the parties will need to file the following documents with the FAA Registry: (i) an FAA Lease Termination signed by both lessor and lessee, and (ii) a document whereby title to the aircraft is conveyed to either the lessor (if the lessee is in default under the lease) or to the lessee (if the lease transaction has been successfully completed); the parties may file a separate bill of sale or, alternatively, the conveyancing language can be included in the FAA Lease Termination.

4. When the lease transaction is complete and the aircraft is to be sold to a third party, the FAA Registry will require a bill of sale from the lessee, not from the lessor.

Foreclosures/Certificates of Repossession

The New Form of the Certificate of Repossession

Prior to March 21, 2000, it was common practice for a secured party to file a certificate of repossession upon default by the debtor and repossession by the secured party of the aircraft. Along with the certificate, the secured party would file an Aircraft Registration Application and the FAA Registry would process the documents and show a change in registration of the aircraft to the secured party. This was permitted by the FAA Registry even though the documents did not state that foreclosure of the debtor’s interest had occurred. Filings of this nature by a secured party were viewed as precautionary -- protecting record “title” to the aircraft while the foreclosure proceeded. The following language from the then current FAA form of certificate of repossession (AC Form 8050-4, with date of 6-99) supported this precautionary filing practice:

. . . the undersigned repossessed the aircraft described above on the ___ day of _____, ___, and that by virtue of such act of repossession they [the repossessing party] divested the said debtor, and any and all persons claiming by, through or under them, of any and all claims they had or may have had, and now hold title to the aforesaid aircraft, free and clear of all rights and claims of any persons whatsoever, as fully as if they had foreclosed in a court of law or equity.

A few years ago, the FAA Aeronautical Center Counsel’s Office (the “FAA Counsel”) reviewed the form of certificate of repossession and legal issues under Article 9 of the UCC and issued a new form of certificate of repossession and Notice and Opinion dated March 7, 2000 (the “Opinion”).[2] The Opinion and new form of certificate make it clear that foreclosure is the act which divests title, not repossession. The Opinion explains the change in the form and reasoning:

The revisions [in the form of certificate of repossession] emphasize that it is repossession and foreclosure under the applicable local law not the filing of the Certificate of Repossession of Encumbered Aircraft and the Aircraft Registration Application which vests ownership of the aircraft for purposes of registration.

* * *

Repossession alone does not effect a change in or transfer of ownership of the aircraft for purposes of § 47.41(1)(4) of the regulations. A creditor or secured party who has merely repossessed an aircraft without effecting foreclosure is not the owner and is not eligible to make application for registration of the aircraft (see 49 U.S.C. 44103(a)).[3]

Because the FAA Registry system is based on recording “conveyances that affect an interest in civil aircraft of the United States,”[4] the FAA Registry responded to the FAA Counsel’s Opinion with a memo dated April 6, 2000, stating that after June 19, 2000, the FAA Registry would not record a certificate of repossession unless it conforms to the revised format. Thus, “precautionary” certificates of repossession are no longer recorded by the FAA Registry (and will be placed in FAA suspense status, if filed); the Registry will now only record certificates of repossession that conform to the revised format.

See Appendices B and C for forms of certificates of repossession.

End

APPENDIX A

LLC STATEMENT IN SUPPORT OF REGISTRATION

To: Federal Aviation Administration

Civil Aviation Registry

Oklahoma City, Oklahoma

Date: ________________, 2001

Re: Statement in Support of Registration of United States Civil Aircraft in the name of a Limited Liability Company

Ladies and Gentlemen:

________________________________ (the “LLC”), is a citizen of the United States as defined in 49 U.S.C. § 40102(a)(15), and is eligible to register aircraft in its name. In this regard, we make the following representations:

I. The state in which the LLC is lawfully organized:

___________________________________________________________________

II. The effective date of the LLC: __________________________________________

III. The name of each of the members of the LLC and the type of entity of each member (i.e., individual, corporation, partnership, etc):

Name

_____________________________________________________________________________________

Type of Entity

________________________________________________________________________________________________________________________

U.S. Citizenship Verification

Y _____ N ______

Y _____ N______

Y _____ N ______

If additional space is required, please attach another page.

IV. This LLC is managed by ____ Manager(s) ____ Member(s) ____ Managing Member(s) ____ Officer(s)

V. The manager(s), member(s), managing member(s), or officer(s) referred to in Section IV above, may act independently: Yes _____ No _____

VI. &nbs