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By Scott McCreary

(This article originally appeared in Corporate Jet Investor‘s “The Office Guide to Aircraft Registration 2018″)

The United States Federal Aviation Administration (FAA) Aircraft Registry, commonly referred to as the N Register, is one of the most frequently chosen aircraft registries. A majority of the aircraft in the world are registered in the United States through the FAA. The FAA is the primary US regulatory agency that governs and oversees registration, maintenance and operation of aircraft as it relates to operator safety. In addition, the United States Department of Transportation further provides economic authority for certain aircraft operations and protects consumers from unfair and deceptive trade practices involving the sale of air transportation. The FAA Aircraft Registry, located in Oklahoma City, Oklahoma, issues Certificates of Aircraft Registration for both commercial and general aviation aircraft. Contact information for the FAA Aircraft Registry can be located at here.

There are several advantages to registering an aircraft in the US. The FAA is widely respected for its efficient, secure and inexpensive processes for registering aircraft and perfecting interests in aircraft (including airframes, certain aircraft engines, propellers and spare parts as discussed below). There is a great deal of legal and transactional precedent dealing with aircraft registered with the FAA which provides comfort as to the process for registering and/or cancelling aircraft from the FAA, as well as determining the validity, priority and enforceability of security in aircraft. The US was also one of the first countries to adopt the Cape Town Treaty, thus providing the additional comfort and assurance that interests properly established and registered under the Cape Town Treaty will be recognised in other contracting states. Many parties also take comfort in the fact that the FAA, which is part of the US government, has the resources and wherewithal to properly oversee and enforce its rules and obligations as an aircraft registry. Finally, there is ample evidence that registration with the FAA may help preserve the value of a business aircraft, both because the FAA’s standards for aircraft operations and maintenance are among the highest in the world and because the US is the most active market for aircraft sales.

Aircraft considerations

Is there a weight restriction?
No

Which aircraft type certificates are accepted?
FAA/US type registered

Is there an age restriction?
No

Structuring requirements

Are there nationality requirements?
Yes. The FAA is an owner registry, rather than an operator registry. The FAA requires an aircraft be registered in the name of its legal owner and not a nominee or agent. In certain instances the owner may not be the holder of legal title of the aircraft, for instance a vendee under a contact of conditional sale or the lessee under a finance lease may be considered the owner for purposes of registration with the FAA. It should be noted that the FAA accepts title and ownership documents in support of registering an aircraft, but does not separately register engines or propellers.

The following entities qualify to register aircraft with the FAA:
• Resident Aliens. A resident alien is an individual citizen of a foreign country lawfully
admitted for permanent residence in the US as an immigrant in conformity with the regulations of the Immigration and Naturalization Service of the Department of Justice
• US government.
• State, the District of Columbia or territory or possession of the US, or a political
subdivision of a state, territory or possession.
• A “citizen of the United States,” which is defined to include the following:
1. Individual citizens of the US
2. Partnerships made up of individual citizens of the US
3. Corporations and associations that meet the following criteria:
a. Organised under the laws of the US or a state, the District of Columbia, or a territory or possession of the US
b. President is an individual citizen of the US
c. At least two thirds of the board of directors are [individual] citizens of the US
d. At least two thirds of the other managing officers are [individual] citizens of the US
e. Is under the actual control of citizens of the US
f. At least 75% of the voting interest is owned or controlled by citizens of the US. 49 U.S.C. §40102(a)(15)(C).

If the applicant for registration is a limited liability company, then a Statement in Support of Registration must be submitted with the Application for Registration.

Under certain circumstances, a corporation that is not a citizen of the US may register an aircraft when the corporation is organised and doing business in the US and the aircraft is “based and primarily used” in the US. “Based and primarily used” registration is limited to corporations, and can’t be used by individuals or LLCs.

Under “based and primarily used” registration:
• at least 60% of the total flight hours of the aircraft must be accumulated within the US for the period consisting of the remainder of the registration month and the succeeding six calendar months and each six-calender-month period thereafter (the Six-Month Period)
• only non-stop (except for stops in emergencies and refuelling) flights between two points in the US (even if the aircraft is outside the US during part of the flight) are considered within the US
• the corporation must maintain and make available for inspection by the FAA records containing the total flight hours in the US for the aircraft for three calendar years after the year in which the flight hours were accumulated.

What are the typical structures used to register aircraft?
If the aircraft owner does not meet the US citizenship test and does not qualify for Based and Primarily Used registration, the most common solution is to utilise a non-citizen trust (NCT) structure. Under an NCT, the non-citizen party and a US trustee enter into an NCT to qualify for registration. The form of trust utilised is based on a form previously approved and published by the FAA and contains various restrictions on the non-citizen owner’s control over the trustee. Title to the aircraft is held by the owner trustee, and there is normally an aircraft operating lease agreement from the owner trustee to the trustor/non-citizen entity or a third party operating the aircraft.

Is there a requirement to have local directors or shareholders?
The directors or shareholders don’t have to be physically located in the US. Nevertheless, the aforementioned citizenship test is applicable.

Do you need to have a local office or physical presence?
The Application for Registration requires a physical address, but it does not have to be an address in the US.

What continuing requirements are there to keep an aircraft registered?
A registered owner must file an 8050-1B Aircraft Registration Renewal Application once every three years. Re-registration is $5. In addition, there are a number of circumstances that may invalidate the current registration, such as the registered owner losing its citizenship, the ownership of the aircraft changes, the aircraft is registered on a foreign registry, the parties fail to comply with the 60 percent rule under Based and Primarily Used, etc.

Use and operation of aircraft

Which of the following are possible:
Private use: Yes
Corporate use: Yes
Commercial air transport/aircraft charter: Yes
Aerial work: Yes

What are the requirements for a Certificate of Airworthiness?
In order to obtain a standard airworthiness certificate (FAA form 8100-2), the aircraft must be validly registered with the FAA. In addition, the aircraft must be in a condition that meets its approved type design, is in a condition for safe operation and maintenance, and all preventative maintenance and alterations are performed in accordance with applicable FARs.

What is the inspection interval for a Certificate of Airworthiness?
Inspection intervals for aircraft registered with the FAA Aircraft Registry vary depending on how they are operated and manufacturer requirements. Generally some aircraft are subject to inspections at least once each 12 calendar months, while other aircraft are inspected after each 100 hours of flight. In addition, the pilot in command is responsible for determining that an aircraft is airworthy and in a safe condition before each flight. Parties should coordinate closely with their technical advisors to make certain they comply with any required inspection intervals.

Registration costs and service

Are aircraft registered in the name of aircraft operator or the aircraft owner?
Aircraft are registered with the FAA Aircraft Registry in the name of its owner. The aircraft owner is normally the holder of legal title, but under certain circumstances the registered owner may be considered the vendee under a contract of conditional sale or the lessee under a lease with an nominal purchase option. The FAA does not allow for registration in the name of a nominee.

What is the initial cost to register an aircraft?
$5

What are the annual costs for aircraft registration?
$5 every three years.

What is the average time needed to register an aircraft?
The time required to mechanically register an aircraft with the FAA varies from a few days to a few weeks. More often than not, the timing is controlled and affected not by the FAA itself but rather by the deal structure and the parties’ understanding of the requirements for registering the aircraft on the FAA and obtaining a certificate of airworthiness. For instance, the FAA has various forms and rules for executing those forms that must be followed for them to be processed. Thus timing can be greatly reduced by engaging legal and technical advisors that are experienced with registering aircraft with the FAA.

If the aircraft is operated internationally, the parties may submit a Declaration of International Operations asking the FAA to expedite the change of ownership and subsequent US registration of the aircraft. In addition, the FAA automatically expedites registration for aircraft that are being imported onto the US registry after cancellation from a foreign registry. If expedited, the FAA often processes the documentation and issues a temporary certificate of registration (commonly referred to as a fly wire) within one to three working days. If the aircraft is operated domestically and is not an import, it may take the FAA several weeks to process the documents and register the aircraft. Nevertheless, the FAA allows for the operation of the aircraft within the US for a period of 90 days from the date of the Application so long as an appropriate current airworthiness certificate or a special flight permit and a duplicate copy of the Application is on board the aircraft.

In addition to registering the aircraft, the parties must make certain they have obtained a US certificate of airworthiness or ferry permit upon registration in order to operate the aircraft. The certificate of airworthiness is not issued by the FAA Aircraft Registry and thus requires coordination with a US Designated Airworthiness Representative or other authorised party.

How much does it cost to register a mortgage?
$5 per airframe, engine and/or propeller per conveyance.

Does the registry/aviation authority require a notarised/authenticated document to register an aircraft?
In most instances the FAA does not require documents be notarised, but the FAA requires parties file originally ink signed documents or documents with appropriate digital signatures. Care should be take to confirm the documents are digitally signed, and not merely electronically signed, and are otherwise in the form required by the FAA. In addition, the FAA has specific requirements as to which titles it will accept from a signatory without further documentation to support the authority of the person executing for the company. Normally, the FAA Aircraft Registry will accept documents signed by a person with a managerial title such as officer, manager or director, but it will not accept documents signed by an attorney in fact or authorised signatory without
supporting documentation.

Financing and deregistration

Is there a requirement for a governing law of mortgage?
Although most parties choose US law to govern their documentation, the FAA will record documents governed by non-US law. Parties should make certain the law chosen complies with any applicable conflicts of low rules and take legal advice on the issue.

What is the most common choice of law for financings?
Choice of law can vary but New York law is common.

Can financiers file a Deregistration Power of Attorney/Irrevocable Deregistration Power of Attorney (IDERA)?
Yes, the FAA will accept an IDERA so long as it is in the proper form and associated with a recordable encumbrance.

Is there a public mortgage registry?
Yes, parties can file liens and encumbrances with the FAA but should also register interests on the International Registry. There are also instances where a lender may require filing a UCC Financing Statement against the grantor, debtor or lessee. Liens and encumbrances can be filed and recorded against the aircraft, but should be recorded separately against: specifically identified aircraft engines of 550 or more rated take-off horsepower, or the equivalent of that horsepower; specifically identified aircraft propellers able to absorb 750 or more rated take-off shaft horsepower; and any aircraft engine, propeller, or appliance maintained by or for an air carrier certificated under 49 U.S.C. 44705, for installation or use in an aircraft, aircraft engine, or propeller, or any spare part, maintained at a designated location or locations by or for such an air carrier.

Is it easy for financiers to perfect a mortgage?
A lender would typically record the mortgage with the FAA, make the appropriate registrations on the International Registry and filing a UCC Financing Statement against the grantor/debtor. The parties must file an original counterpart of the security documents with the FAA. As these filings require various legal and technical steps, the parties should engage appropriate legal counsel in this regard to make certain they are properly perfected.

How long is the period during which a moratorium can be imposed in the event of a lessee or borrower insolvency?
Should a lessee or borrower file for bankruptcy, under US law and in US courts, an “automatic stay” may be imposed, preventing further action by the lessor or lender against the debtor/lessee or the aircraft. The rights of the parties and any dispute as to the aircraft would be addressed within the bankruptcy proceedings. In certain limited circumstances, Section 1110 of the US Bankruptcy Code may allow the lender or lessor to repossess the aircraft 60 days after the initial order for relief unless all defaults (other than defaults related to the financial condition of the debtor/lessee or the reorganisation or insolvency itself) have been cured and the debtor/lessee agrees to perform all future obligations.

Does the registry/aviation authority require a notarised/authenticated document to deregister an aircraft?
The FAA does not require a notarised document to cancel US registration, but the documents requesting cancellation must otherwise be ink signed originals (or properly executed in compliance with the FAA’s digital signature requirements) and signed by an individual meeting the FAA’s signature authority requirements.

What are the requirements for deregistration of an aircraft?
The registered owner of the aircraft who wishes to cancel the Certificate of Aircraft Registration for the purpose of export must submit to the following to the FAA Aircraft Registry:
• A written request for cancellation describing the aircraft by make, model and serial number, and stating the US registration number and the country to which the aircraft will be exported;
• (i) For an aircraft not subject to the Cape Town Treaty, evidence satisfactory to the FAA that each holder of a recorded right has been satisfied or has consented to the transfer; or
(ii) For an aircraft subject to the Cape Town Treaty, evidence satisfactory to the FAA that each holder of a recorded right established prior to the date the Treaty entered into force with respect to the US has been satisfied or has consented to the transfer;
• A written certification that all registered interests ranking in priority to that of the requestor have been discharged or that the holders of such interests have consented to the cancellation for export purposes.

If the aircraft is subject to the Cape Town Treaty and an IDERA has been filed with and accepted by the FAA, the FAA will honour a request for cancellation only if the party authorised under the IDERA makes the request. As a practical matter, the registered owner or holder of the IDERA must obtain and file with the FAA either releases or consents to cancel US registration from the holders of interests ranking in priority to the requesting party.

What are the requirements for deregistration of mortgage?
An originally executed ink signed (or properly executed in compliance with the FAA’s digital signature requirements) release by the lienholder describing the collateral and the mortgage as required by the FARS should be filed for recordation with the FAA.

Cape Town

Has the jurisdiction ratified the Cape Town Convention?
Yes

What date did it come into effect?
1 March 2006

If yes, which Cape Town declarations have been made?
The US lodged declarations under Sections 39(1)(a)-(b), 54(2) of the Convention and Sections XIX, XXX(1) (including Articles VIII, XII and XIII) of the Aircraft Protocol. The US established the FAA Aircraft Registry as an authorising entry point to the International Registry with respect to civil aircraft of the US or an aircraft for which a US identification number has been assigned. In order for a registration with International Registry to be valid as to such aircraft or helicopter, the parties must request and obtain a unique authorisation code from the FAA Aircraft Registry by filing:
• a completed AC Form 8050-135; and
• any documents representing the transaction that are recordable with the FAA (such as the mortgage, lease or bill of sale).

The code is used when making registration with the International Registry. For prospective international interest, the documents must be filed with the FAA within 60 days of the date of the filing of the AC Form 8050-135.

Importing and exporting aircraft

Are there significant taxes or fees involved in importing an aircraft?
The FAA Aircraft Registry does not impose significant taxes or fees for registering an aircraft. The parties may be subject to various other sales, use or income taxes imposed by the US or other jurisdictions, and will need to comply with any US customs regulations.

Is an Export Certificate of Airworthiness, licence or permit required to export an aircraft?
An Export Certificate of Airworthiness is not required to cancel the aircraft from the FAA Aircraft Registry, but is often required or utilised by the new aircraft register. As such, parties should take care to obtain the Export Certificate of Airworthiness or confirm with the relevant technical advisors that it is not needed before cancelling US registration of the aircraft.

Judgments and arbitration

Will a court in the US recognise and enforce a judgment rendered by a New York State Court or a US federal judge?
Yes

Will a court in your jurisdiction recognise and enforce a judgment rendered by an English court?
Typically, a foreign judgment would need to be domesticated in the US in order to be recognised by the FAA.

Can the government of the country requisition or confiscate an aircraft without needing to pay compensation?
The US can confiscate an aircraft if the aircraft is used in furtherance of a crime (ie civil asset forfeiture).