February 20, 2020

February 19, 2020

Subscribe to Latest Legal News and Analysis

February 18, 2020

Subscribe to Latest Legal News and Analysis

February 17, 2020

Subscribe to Latest Legal News and Analysis

US Aircraft Regulatory Registration Basics for Financings

The registration of aircraft in the United States is the responsibility of the Federal Aviation Administration (FAA). Under Title 49 of the US Code (the Transportation Code) and Title 14 of the Code of Federal Regulations (the Federal Aviation Regulations), an aircraft is eligible for registration only if its owner is a US citizen and the aircraft is not registered under the laws of a foreign country. The citizenship requirement applies to individuals and partnerships, provided that each member thereof is a citizen. It also applies to corporations, provided that the following are citizens (see Part 47.2 of the Federal Aviation Regulations):

  • the president;

  • at least two-thirds of the board of directors and other managing officers; and

  • owners of at least 75% of the voting stock.

An aircraft may be registered only in the owner's name; the term 'owner' includes a buyer or a lessee under a conditional sale contract. Under Part 47.9 of the Federal Aviation Regulations, the owner need not meet the US citizenship requirement if:

  • the owner is organised and doing business under the laws of the United States or any of its states;

  • the aircraft is based and primarily used in the United States (which the FAA has interpreted to mean that 60% of flight hours are accumulated during non-stop flights between two points in the United States in each six-month period); and

  • the owner or lessee certifies as to the use and submits semi-annual reports to the FAA regarding actual flight hours.

Under Part 47.8 of the Federal Aviation Regulations, a shareholder voting trust may also be used to qualify a domestic corporation that is owned by foreign shareholders as a US citizen for the purpose of registration of an aircraft. The applicant must submit to the FAA registry a copy of the voting trust agreement, which identifies each voting interest of the applicant and is binding on each voting trustee, the applicant corporation, all foreign stockholders and each party to the transaction. The applicant must submit affidavits from each voting trustee, wherein they represent that they are US citizens and that there is no reason why any other party to the agreement might influence their independent judgement. The voting trust agreement must provide for the succession of a voting trustee; if the voting trust is modified such that US citizens hold less than 75% control of the voting interests, the holder loses citizenship.

Pursuant to Part 47.7 of the Federal Aviation Regulations, an owner's trust over the aircraft may also be used to satisfy the US citizenship registration requirements. In this case the foreign beneficial owner of the aircraft places the aircraft in a trust with a US citizen owner trustee. The trustee must also submit an affidavit to the FAA stating that it is not aware of any reason or relationship as a result of which the non-US citizen beneficiary would have more than 25% aggregate power to influence or limit the trustee's authority. The trust itself must contain similar provisions.

Part 47 of the Federal Aviation Regulations was amended in October 2010 so that, over a three-year period, the registration of all aircraft registered before October 1 2010 will terminate, and such aircraft will be required to renew their registration to maintain US civil aircraft status. Furthermore, for all aircraft registered on or after October 1 2010, the registration will have a recurrent three-year expiry.

After an aircraft is registered properly, conveyances, leases and mortgages and the like may be recorded at the FAA for perfection purposes. Section 44107 of the Transportation Code provides for a system for recording bills of sale, mortgages, contracts and other instruments affecting interest in or title to an aircraft. Part 49 of the Federal Aviation Regulations covers the recording of title and security documents. There is no US citizenship requirement or other limit as to who may be a mortgagee. To be recorded, the instrument must identify all aircraft by make, model, serial number and US registration number. The fee for recording any conveyance or instrument is $5. No fee is required for recording a bill of sale that accompanies an application for aircraft
registration and the proper fee under Part 47 of the Federal Aviation Regulations.

Recorded documents may be amended, and any amendment must be signed by both parties to the original instrument and filed with the registry. Each mortgage or other conveyance filed with the registry is valid and perfected from the time of filing as to all persons with whatever priority is given by state law.

The United States has also ratified the Convention on International Interests in Mobile Equipment, which permits liens, contracts for sale and international interests in aircraft objects to be perfected by notation on an electronic international registry. The convention creates an international interest that is recognised in all contracting states and provides creditors with a range of default remedies.

The convention applies to transactions involving aircraft objects concluded after March 1 2006 and, at the time of the transaction closing, either the aircraft is registered in the United States or the debtor is situated in the United States. Aircraft objects include fixedwing aircraft certificated to transport at least eight persons or more than 6,050 pounds (lbs) of goods and airframes for helicopters certificated to carry at least five persons or goods in excess of 990lbs. All aircraft engines producing at least 550 horsepower, whether jet or propeller driven, must also be recorded.

Part 49F of the Federal Aviation Regulations provides the requirements to be eligible for authorisation to transmit information to the international registry. Persons wishing to file their interest on the international registry must first obtain an access number, which is done by filing Form 8050-135 with the FAA along with any documents representing the transaction that meet the requirements of Part 49C. These documents include an aircraft bill of sale, contract of conditional sale, a mortgage and an assignment of a mortgage or other instruments affecting title to or an interest in aircraft. Once an access number has been authorised, parties may list their interest in an aircraft on the electronic international registry without filing any documents thereto (ie, a bill of sale or aircraft registration). In order to access the international registry, a party must have an administrator approved by the registry and be authorised as a transacting user entity. After this is done, a transaction user entity can then retain the services of a professional user entity to make the required electronic registrations.

©2020 Katten Muchin Rosenman LLP


About this Author

Timothy J. Lynes, Aviation Attorney, Katten Muchin Law Firm

Timothy J. Lynes is the head of the firm’s Aviation practice. He has been representing manufacturers, lessors, airlines and their insurers in the sale, leasing and financing of aircraft for more than 25 years. Much of Tim’s practice involves structuring aircraft sale agreements, cross-border and tax leases, loans, chattel mortgages, residual value and credit support agreements and aviation insurance policies. He also regularly advises clients on Department of Transportation and Federal Aviation Administration regulatory issues.