Category: Aircraft Registration

Is buying always better? When leasing is a better option

Leasing vs. Buying – Have you been considering buying an aircraft recently? Are you unsure about taking on that type of financial commitment? Consider: buying isn’t your only option. Pilots are opting to dry lease their aircraft instead from owners looking to expand their business use of the plane.

When you lease an aircraft you are receiving a transfer of possession of the aircraft without receiving title. The lessor retains the title of the aircraft and therefore bares the burden of potential devaluation and the ongoing costs of ownership. The lessee remains liable for any negligent operation of the plane or damages to it unless the lease agreement provides otherwise.

It’s very important to check with your attorney and insurance provider on liability issues before you sign a lease agreement to make sure all of your bases are covered. If you are an owner-lessor, you can require your lessee to purchase trip insurance for his flight, or, if he’s a regular customer, add him as an additional insured to your policy.

A minefield to be aware of is the difference between “wet” and “dry” leases, and whether the owner can receive compensation. In broad terms Part 91 of the federal aviation regulations distinguishes a “wet lease” as including crew. So, if you offer to fly your customer from the left seat for any type of compensation you are engaged in commercial transportation for which you require certification under Part 135. The FAA’s view of “compensation” is very broad, and can include a range of benefits, some very noble, other than money. A third party “dry lease”, in contrast, is best suited to the pilot/lessee in planes that require no additional crew.

Issues related to wet and dry leases, as well as what constitutes “compensation” for a flight are critical. Getting it wrong can cost you your license. Contact us for guidance on these distinctions before leasing, either as an owner or a customer.

FAA Questions Non-Citizen Trusts

Inexplicably, the FAA recently issued (and then lifted, temporarily) a moratorium on registration of Foreign Ownership Trusts, whereby a non-US citizen (not otherwise eligible to register an aircraft as a “United States Citizen”) could qualify as such by employing a citizen Trust to register the aircraft. Generally speaking, these Trusts are designed to vest voting authority in a U.S. citizen (including entities defined as such), thereby removing control over such matters from the non-citizen. Naturally by employing such a device the non-U.S. citizen has some, de facto, control over the Trust’s affairs, but this structure has been satisfactory to the FAA for years and not been a source of real concern until recently. In a May 13, 2010 letter to NBAA administrator Ed Bolen, however, the FAA decided to continue such registrations pending a Notice of Proposed Rulemaking (NOPA) on changing this part of the registration regulations. What prompted the change remains something of a mystery.

16 Annual Aircraft Registry Forum – A Summary

Earlier this week I attended the 16th Annual Aircraft Registry Forum here at the Ritz-Carlton in Naples, FL.  The conference was well attended, especially given our turbulent economic times.  While apparently the past few years have been “All Capetown All The Time”, the panels this year consisted of a good mix of aircraft attorneys, bankers, and representatives from charter and fractional program providers.  A brief summary:

The “Three Layer Cake” of title and closing – Closing aircraft deals post-Capetown requires all parties to pay careful attention to FAA registration issues, the UCC (or its state law equivalents), and the rules and regulations of the International Registry and international law.  The theme here is that the procedures one follows for FAA registration purposes may not necessarily correspond to IR defintions and proceudres for preserving one’s “international interests”.  Some key tips in this area included the suggestion that you re-register on the IR lease agreements that expire and are renewed.  Although this may be cumbersome, especially for short-term leases, re-registering a lease agreement avoids any ambiguity as to the validity of the lessor’s (or lessee’s rights) after the initial lease term.

Change in Lending Practices – As one would expect, lenders have become much more cautious in originating new aircraft loans, and are relying more on structured finance, sale-and-leaseback, and other solutions to get deals done.  Aircraft buyers should expect to have to disclose much more information about their revenues and financial health, as lenders are unable as in the past to rely on the aircraft holding its value as security for the loan.  Distressed owners will be asked to “open their books” when it comes to loan modifications.  The distressed borrower should be cautious in such cases, however, to restrict the use of sensitive financial information to reviewing the borrower’s ability to pay.  Contact an experienced aviation attorney in order to preserve your rights.

Changes to the International Registry – New guidance, regulations and a software update.  Special kudos to Rob Cowan, Managing Director of Aviareto Limited, the organization responsible for administering the International Registry, for coming all the way from Ireland to speak to his customers in person.  ICAO recently issued the third edition of regulations and procedures for the IR.  Some highlights include changes that make changing entity names easier, and an expansion in the scope of “controlled entities”, an important consideration for companies with aircraft-owning subsidiaries.  Aviareto has responded to survey data in making changes to the software, including an improved search function for looking up entities registered on the system.  This is a welcome development for the parties to a deal that need verification that a party to the deal is set up as a TUE and ready to go.

For questions contact Ari Good, JD LLM, at Good Attorneys At Law, P.A. – www.goodattorneysatlaw.com.