On February 8, 2012, the Federal Aviation Administration (“FAA”) issued a Notice of Proposed Policy Clarification for the Registration of Aircraft to U.S. Citizen Trustees in Situations Involving Non-U.S. Citizen Trustors and Beneficiaries (the “Notice”). The Notice is intended to address problems experienced by the FAA in obtaining information about the identity of aircraft operators, and the nature of operations conducted. The FAA believes that the absence of such information substantially diminishes the FAA’s oversight of such aircraft, especially when operated outside the United States.
To address the absence of this information, the FAA has issued the Notice to gain greater transparency in the ownership of registered aircraft. The Notice addresses the following issues:
- The FAA has determined that operating agreements between owners of aircraft and the trustor or beneficiaries of the trust, which historically were not typically filed with FAA, often enlarge the degree of control exercised by a non-U.S. citizen over a trustee. Seeking greater transparency, FAA clarifies that all operating agreements or similar side agreements involving the trustee transferring custody and use of the aircraft be submitted to the FAA along with any other documents that affect the relationship between the trustee and the beneficial owner.
- The FAA imposes strict restrictions on the ability of non-U.S. citizens or resident aliens to remove the trustee – lending more meaningful status and permanence to the trustee as the owner of the aircraft held in trust. The FAA is concerned that the trust agreements allow trustees to be removed for cause without specifying what constitutes sufficient cause. Therefore, the FAA will require that non-citizen trust agreements must describe with specificity what would be sufficient cause for removal of a trustee by a non-U.S. citizen beneficiary.
- §47.7(c)(3) of the FARs provides that non-U.S. citizens or non-resident aliens may not have more than 25% of the aggregate power to direct of remove a trustee. In those cases where a non-citizen trustor appears to have 100% of such power, the FAA needs to be assured in writing how and why it is that such non-citizens will not be able to exercise power in excess of 25%.
- Finally, the FAA has adopted certain changes to the standard non-citizen trust agreement that has developed over the years. Specifically, the description of the trustee’s duties in the non-citizen trust agreement should reflect aspects of duties imposed by the FAA on owners and the understanding that the owner trustee may need to rely on the assistance of the trustor and/or beneficiary to meet those duties. Additionally, changes have been made to make it clear that the trustor may not control the Owner Trustee’s duties under the non-citizen trust agreement including, but not limited to, matters involving ownership or the operation of the aircraft.
For additional information on the changes or modifications found in the Notice, or to draft and submit a comment in response to the Notice, please contact Michael Fleming at (202) 457-7790.