The Federal Aviation Administration (the “FAA”) has issued a final rule (the “Final Rule”), effective October 1, 2010, that amends FAA aircraft registration regulations. The Final Rule will terminate the registration of all U.S aircraft registered prior to October 1, 2010 over a three year period, and will require subsequent renewals of each aircraft every three years thereafter to retain U.S civil aircraft status. The Final Rule will also establish a system for a three year recurrent expiration and renewal of registration for all U.S. registered aircraft. The Final Rule is a significant departure from the current registration scheme in which registration is non-expiring. The Final Rule will impact all aircraft owners, lessors and owner trustees, and it may also affect loan documents, leases, insurance policies and security interests.
The FAA reasons that the change to the registration system will provide more up-to-date registration data and better information about the state of the aviation industry. The risk under the Final Rule is that aircraft may no longer be properly registered. The failure to properly register aircraft has widespread practical implications, including the grounding of unregistered aircraft. Significant economic implications may also arise from the failure to properly register aircraft, such as defaults under loan documents and leases, which commonly require aircraft owners to represent and covenant as to the valid registration of the subject aircraft.
Insurance providers may also be allowed to deny coverage for liability because insurance policies typically require valid registration. Additionally, increased liability for aircraft owners, lessors, and owner trustees could result in cases in which an aircraft cannot be lawfully operated without a valid registration. Furthermore, although the FAA takes the position that deregistration will not affect an otherwise properly perfected security interest in an aircraft, the perfection of such security interest could be called into question.
The mechanics of the re-registration and renewal process under the Final Rule also increase the possibility that aircraft will not be properly registered. The FAA has stated that it will only communicate with an aircraft’s registered owner via notice 180 days prior to the expiration of the registration resulting in a three month window for re-registration or renewal. Thereafter, the FAA will send only one reminder notice to the aircraft owner, despite industry wide requests that the FAA also send notices to the aircraft operators and secured parties. The FAA, however, has indicated that it will adhere to its position to send notices only to the registered aircraft owner. To the extent registered ownership rests in an owner trustee structure, trustees should remain cognizant of these new requirements and coordinate their actions as provided for in the relevant transaction documents.
