Aircraft owners previously registering in the U.S. needed to file only once with the FAA Civil Aviation Registry (Registry). To enhance Registry accuracy, the FAA published significant new regulations on July 20, 2010, requiring aircraft registrations to be affirmatively renewed every three (3) years to remain valid. This Alert outlines the new rule and its implications, and touches upon the FAA’s recent review of owner trusts.
The new rule requires aircraft owners to re- register all aircraft registered prior to October 1, 2010 within a three year period. The FAA has assigned a three month window for owners to re- register based on the issue date of their existing certificate. A table showing the re-registration filing windows is provided on the FAA website and in the new Federal Aviation Regulation §47.40(a)(1).
All re-registered and new aircraft registrations submitted on or after October 1, 2010 will be valid for three years. The expiration date will be stated on the registration certificate. Thereafter registrations must be renewed within the prescribed three month renewal window or risk cancellation. To ensure timely filings and to allow for processing, the filing window will close two months prior to a certificate’s scheduled expiration.
The new rule also includes procedures enabling the FAA to timely enforce and cancel unregistered aircraft. Heeding industry concerns over N-number changes, the FAA will wait thirty (30) days after a registration expires, and send another letter to the owner affording an opportunity to reserve the N-number before the FAA processes cancellation, putting the N- number on hold for five (5) years.¹ Unlike with
ownership transfers, no “pink copy” certificate will be issued allowing temporary operation while a submission is pending. An aircraft must be grounded until a new registration certificate is received.
In a change from prior practice, the FAA will accept submissions of re-registrations (new Form 8050-1A) and renewals (new Form 8050- 1B) 2 on its website provided they are timely filed and entail no changes, otherwise manual submission is still required. The FAA website will also help users by posting registration expiration dates along with the stages of pending re-registrations and renewals for all aircraft. The FAA will endeavor to notify owners twice prior to their registration’s expiration with the first notice 180 days prior to expiration, and a second at the end of the filing window if no re- registration or renewal has occurred. The notice will advise the applicable filing window and provide a unique passcode for online filing. The rule eliminates and supplants the present Triennial Aircraft Registration Report Program which required inactive owners to respond to FAA information requests.
Although the re-registration and renewal filing fee remains $5.00, the current FAA Reauthorization Act (H.R. 915) in Congress proposes higher fees and allows for increases over time.
The Impact & Feedback
Periodic registration will obviously impact aircraft owners and the FAA, but also lessors, financiers, owner trustees, manufacturers, insurers, and others in the industry. Failure to timely renew registration could result in (1) grounding of aircraft, (2) triggering of defaults under leases and security agreements, (3) voiding of insurance coverages, or (4) possible imposition of civil or criminal penalties. Cancellation of an aircraft’s N-number will require re-painting the aircraft and amending numerous aircraft agreements and filings.
Commentators fear the FAA will be overwhelmed re-processing current registrations, sending out expiration warnings, and enforcing cancellations, resulting in errors and delays in registrations. Others voice concerns over the severe implications of cancellations. Nonetheless, most commend the FAA’s stated objectives of enhancing the reliability of the Registry, as well as air safety and law enforcement. The FAA has determined after consideration of industry concerns following a previous notice of proposed rule making, that the final rule best meets the stated objectives. There are approximately 357,000 aircraft currently on the Registry, up to one third of which are presumed by the FAA to be inaccurate. The new rule is predicted to reduce Registry errors by 31%. An accurate Registry will provide clarity for owners; facilitate financings and transfers; help manufacturer’s distribute safety information; aid law enforcement efforts of Homeland Security, the Drug Enforcement Agency and other government agencies; and, aid in real time Registry uses such as flight plan verification.
Will the change be as earth shattering as feared? Car owners, a more numerous lot than aircraft owners, renew their vehicle registrations on a periodic basis. Financiers of personal property faced similar upheaval a decade ago when revisions to UCC Article 9 required re-filing of existing liens to a debtor’s jurisdiction and filing of continuation statements every five (5) years to prevent lapse of recorded security interests.
We suspect aircraft registrants will similarly adapt. As noted by the FAA, owners already adapt compliance systems for periodic scheduling and maintenance of aircraft. Aircraft owners and operators, trust companies, aviation attorneys and others will develop in-house systems for tracking and filing renewals for themselves or their clients. Transaction documents may be revised. Security agreements and leases already contain covenants to maintain registration, though parties may want to clarify the obligations of renewal and costs associated therewith. Indemnity clauses may be reviewed to ensure recompense for losses from cancelled registrations. Depending on the FAA’s execution, parties may even negotiate a short grace period to cover defaults of lapsed registration due solely to an FAA processing
delay despite timely submission. Insurance policies may need revisiting.
Non-Citizen Owner Trust Structures
Also of note on the U.S. aircraft registration front, the FAA is reviewing aircraft registered under U.S. owner trust structures beneficially owned by foreigners (Non-Citizen Trusts), portending a possible future regulatory change. There are approximately 10,000 aircraft currently registered to Non-Citizen Trusts. The structure enables foreigners to register in the U.S., avail themselves of the benefits of Cape Town and U.S. laws, and facilitate financing. A few months ago, confusion ensued when the FAA Registry allegedly ceased processing trust applications prompting an outcry from stakeholders. In response, the FAA Chief Counsel issued a clarification letter stating there was no moratorium but that the FAA was conducting a “comprehensive review” of Non- Citizen Trusts. At this point, it is not clear if the agency concern is with all owner trusts or only those operated by foreigners. As with the Registration Renewal rule, the review may be partly prompted by national security concerns.
In summary, aircraft owners registered, or wishing to register, in the U.S. need to stay current on regulations, understand their obligations, and arrange for on-going compliance, all of which can be achieved through in-house procedures and the assistance of their aviation attorneys.
¹ Newly adopted FAR §47.15(j)
² Distinguished from first time registration application Form 8050-1