FAA Considering a Radical Change in Aircraft RegistrationUse of Trusts by Foreign Owners under Scrutiny
Edward P. Faberman and Greg Cirillo
May 7, 2010 | AirWorthy Alert
The U.S. Federal Aviation Administration (FAA) is re-examining its long-standing practices in the area of aircraft ownership and the statutory citizenship requirement. At this point, the FAA's intent is not clear and is based on a non-specific indication from the Aeronautical Center of the Federal Aviation Administration in Oklahoma City-the part of the FAA that manages the civil aircraft registry. It appears that the FAA is considering applying the citizenship requirement not just to owners, but also to foreign persons or entities exercising operational control of U.S. registered aircraft. In a letter to Joseph Standell, Assistant Chief Counsel with the Aeronautical Center, an association of aviation attorneys in Oklahoma City lays out the dire consequences of that action, including loss of aircraft use, default in financings and most importantly loss of an ownership, use and financing structure that has been accepted by the FAA for decades. The letter can be found here.
It is anticipated that this threat of action will trigger a wave of activity in Oklahoma and Washington, DC. We anticipate that the FAA's effort may be challenged as being beyond the statutory authority of the FAA (as citizenship limits apply only to ownership), with a fall-back position allowing foreign lessees to operate N-registered aircraft subject to enhanced disclosure obligations. There may also be a call for a formal FAA rulemaking, with a proposal and opportunity to comment, to bring some order and public participation into the process. Given the decades of policy that this is unsettling, it would be difficult for the FAA to portray this as an emergency situation justifying a leap-frog over fair rulemaking.
It is important to note that this position does not just affect ownership trusts, but would also impact any situation where a foreign entity has operational control of an N-registered aircraft.
We will distribute an updated AirWorthy Alert as things develop.
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