In response to scuttlebutt that the FAA had ceased processing aircraft registrations for foreign-owner trusts, the agency sent a letter to a group of stakeholders clarifying that it has not imposed any moratorium on the issuance of pending or future registrations involving non-citizen trusts.
“The FAA Aeronautical Center is continuing its past practice of issuing opinions covering non-citizen trust in accordance with its prior practice,” FAA chief counsel David Grizzle wrote in a letter addressed to NBAA president and CEO Ed Bolen. “We are not challenging the registration of aircraft currently registered under non-citizen trusts.”
However, he said the FAA is conducting a more comprehensive review of non-citizen trusts to ensure compliance with existing law, and determine whether any “improvement” should be made.
“In this regard, we do not contemplate any immediate changes to agency practice,” said Grizzle. “During this review, we will involve the various stakeholders. In addition, following our review, to the extent the agency proposes any change in interpretation, rule or law, the agency would follow notice-and-comment procedures as appropriate.”
NBAA worked with other stakeholders–including the General Aviation Manufacturers Association, National Air Transportation Association (NATA) and National Aircraft Resale Association–to explain the “catastrophic consequences” that such a moratorium would cause, resulting in delayed transactions and the potential for sales to be halted.
In response to industry concerns, the FAA issued the letter on May 13 clarifying that the agency continues to process registrations involving foreign-owner trust registrations and is not challenging the registration of aircraft currently registered under non-citizen owner trusts.
Grizzle requested that his response be passed on to the other signatories who urged in a May 10 letter to Grizzle and FAA Administrator Randy Babbitt that the agency work with the industry to craft a strong and equitable solution. “In the interim, we respectfully require the FAA to continue the standard industry practice of allowing the use of non-citizen trusts and confirm that any future decisions as to the validity of such trusts will not have retroactive effect,” they wrote.
According to NBAA and the others, the potential consequences of a moratorium and a change in FAA policy on the aviation community are hard to overstate. For example, at present there are a large number of transactions that either are pending or will soon be entered into which rely on the non-citizen trust structure. An FAA moratorium would delay or possibly prevent those transactions.
Such an action could cause defaults under the relevant agreements and result in millions of dollars of damages, lost deposits and litigation expenses, the stakeholders argued. Airlines, companies and individuals would not be able to take delivery of, or sell, lease or finance aircraft which, in turn, would significantly affect the manufacturers, sellers, lessors and buyers of those aircraft.
The Association of Aircraft Title Lawyers (AATL) said it is unclear whether the FAA’s primary concern is ownership of the aircraft, operational control of the aircraft or other issues that have not been identified. Foreign trusts (like all trusts) are established such that the trustee holds legal title for the benefit of the beneficiary.
AATL said the non-citizen trust agreement contains language that limits the beneficiary’s control of the trustee; however, the regulations do not prohibit the beneficiary from using the aircraft.
“Non-citizen trusts are not used by legitimate companies to hide the ownership or operation of aircraft,” the AATL said in a letter to the FAA. “If required by the FAA, trustees would be able to provide the FAA with much more information about the ownership and operation of an aircraft than what is currently required from owners of aircraft registered under non-trust registration methods.”
There are at least 10,000 aircraft currently registered by the FAA under owner trusts. AATL told the FAA that any ruling that could be interpreted to apply retroactively to the registration of those 10,000 or more aircraft, and possibly invalidate those registrations, would be devastating to the industry and related parties.