Jetrader - November/December 2010 - 24

A Matter of
By Don Mitchell

Trust

The FAA has been a registry of convenience for years. A reliable filing system and well-established regulations and guidelines help to make it a model for the world. As a result, owners, operators and financiers have consistently chosen to register aircraft in the United States, even if they never set wheels on U.S. soil. And while only U.S. “citizens”1 may register aircraft in the United States, through trusts2 created with the statutory and regulatory blessing of the FAA, non-U.S. citizens have been regularly able to facilitate U.S. registration without difficulty for many years. The U.S.-based owner trust satisfies the citizenship requirement that a non-U.S. owner cannot. Trusts are used for many reasons in the commercial and general aviation sectors including certainty of U.S. citizenship for U.S. and non-U.S. based business entities, simplification of financing and repossession, optimization of tax planning, and convenience of import and export of aircraft by nonU.S. citizens. It’s oftentimes the simplest solution to a complicated problem, and it is estimated that more than 10,000 trusts have been utilized over the past 25 years. Title to the aircraft is transferred to the trust under a written trust agreement detailing the respective rights, obligations and liabilities of the trustee and trustor. Thereafter, the trustee manages and maintains the trust assets for an annual fee.

been the trustors themselves. It is suspected that title had been delivered to the owner trustee with possession being immediately turned back to the trustor without completing necessary filings evidencing transfer of operational control to the operator through a lease or other agreement. Details remain sketchy because the FAA has not been forthcoming with the industry about the trigger for their action. What is known is that a wholesale change to this practice, particularly if applied retroactively, would have a devastating impact on the aircraft finance and leasing markets. On transactions that relied on this ownership structure, citizenship covenants would be triggered,

What is known is that a wholesale change to this practice, particularly if applied retroactively, would have a devastating impact on the aircraft finance and leasing markets.
This long-established practice was clouded with uncertainty earlier this year when the FAA was reported to have imposed a moratorium on the review for approval of owner trusts with implications that some U.S. aircraft registrations under earlier approved trust structures could also be invalidated. This “moratorium” was reportedly in response to an investigation conducted by the FAA following accidents involving U.S.-registered corporate aircraft. The owners, in this case owner trustees, reportedly had little knowledge or information on the actual operators and/or operations of their aircraft. In addition, the actual operators of the aircraft may have 24 The ofﬁcial publication of the International Society of Transport Aircraft Trading

Jetrader - November/December 2010

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