The Federal Aviation Administration (the “FAA”) Aeronautical Counsel Center’s office is investigating the use of aircraft owner trusts to obtain valid registration where the trust beneficiary is a non-U.S. citizen (“Non-Citizen Trusts”). Reports that the agency had halted its processing of aircraft registrations based on the use of Non-Citizen Trusts surfaced to outcries from industry leaders and professionals that such a position would have widespread negative impacts on the aviation financing industry worldwide.

Non-Citizen Trusts have been used for many years by non-U.S. citizens as a means by which to register aircraft with the FAA. This practice enables institutions–from major international lenders and lessors to large publicly–traded companies which cannot qualify for U.S. citizenship, due to diverse stock ownership–to keep aircraft registered with the FAA. This, in turn, ensures that the financing of such aircraft remain subject to the Cape Town Convention and U.S. law. The use of Non-Citizen Trusts further provides a mechanism for repossessing lenders to register an aircraft with the FAA after repossession and prior to any sale to a third party, as well as provides interim registration for non-citizen parties who purchase an aircraft in the U.S. until such aircraft can be lawfully removed and transferred to its foreign operational jurisdiction.

The Association of Aircraft Title Lawyers (the “AATL”) responded to reports of the FAA’s investigation into the use of Non-Citizen Trusts with a letter to the FAA’s Assistant Chief Counsel expressing concerns that the cessation of the registration of such trusts, would result in severe economic harm and potential industry wide security-interest defaults. The letter further outlined concerns about the retroactive application of the registration practice. In response to the AATL’s letter, as well as concerns raised throughout the industry, the FAA’s Chief Counsel, David Grizzle, last week issued a clarifying letter. Grizzle’s letter stated that the FAA had not “…imposed any moratorium on the processing of any pending or future registrations involving Non-Citizen Trusts…”, and that the FAA was “…continuing its past practice of issuing opinions covering Non-Citizen Trusts…[and] not challenging the registration of aircraft currently registered under Non-Citizen Trusts.”