- 26 Jul 2021
- Aircraft Ownership
De-registering a business jet from one registry and re-registering it in another jurisdiction can be a complex, time-consuming process. Chris Kjelgaard asks leading aviation law firms from around the world how owners can make the task as quick and easy as possible…Back to Articles
Whether or not the aircraft is being sold in the process, the key takeaway for every business aircraft owner who wants to de-register their aircraft from one country’s registry and have it registered in another jurisdiction is that the process requires both time and detailed advance planning, in order to be accomplished with the minimum of cost and fuss.
Obtaining expert advice on how to successfully overcome the many legal, operational, technical, financial, and tax issues which apply during de-registration and re-registration is always vital, as the highly experienced counsellors with four leading aviation law firms in the USA, Canada, the UK and Malta agree.
That doesn’t mean that sellers, buyers, and continuing owners of aircraft which are to be de-registered and re-registered should only consult law firms, says Daniel Aquilina, Partner in Maltese commercial law firm Ganado Advocates’ Ship Finance and Aviation practice.
“If we were approached to help, we would set out timelines and say what is expected,” in terms of the arrangements the parties to the process should make and the actions they should take, says Aquilina.
“We will suggest that the client gets advice from the right people” for every aspect of the process — legal, technical, re-marketing, operational and tax. “Everyone [consulting in such areas] has their own area of expertise, and it is important to keep the boundaries” between each consultant’s particular specialty intact, he says.
“You need good local advice, a seasoned aviation lawyer who knows what they’re doing where you are located,” says Ehsan Monfared, a Partner with Toronto aviation law firm YYZlaw.
Because the worldwide aviation legal community is a small one, most experienced aviation law firms have close contacts with their counterparts in other countries, and so can help aircraft owners obtain excellent advice both for de-registration from one country and registration in another, he says.
“You need the rapport” that aviation counsellors have with other nations’ aviation law firms Monfared adds. “Individual registries themselves can’t offer that.”
De-Registration: How Early Should you Plan?
Opinions differ among the aviation legal counsellors AvBuyer surveyed in different countries as to how far in advance the de-registering owner should begin planning and making the arrangements and actions required for de-registration to happen.
Some say a couple of weeks can suffice in some cases, offering enough time to develop a “road map” of required actions and arrangements, but others say some de-registration processes can take months.
Re-registration in a new jurisdiction is also not a slam-dunk. Depending on the new registry’s documentation, technical, ownership and operating regulations, that process can take time, effort and not-inconsiderable cost — particularly when the new registry requires the aircraft to undergo a pre-registration physical inspection, and to have modifications made to meet that country’s airworthiness requirements.
For instance, notes Scott Burgess, Founder of Fort Lauderdale-based Aviation Legal Group, for aircraft operated privately, Venezuela’s civil aviation regulator requires all piston engines which have reached 12 years of age to be removed and replaced by younger ones — no matter what the actual time and overhaul status of those engines are.
National Registries Have Differing Characteristics
At least to some extent, the diversity of opinion AvBuyer found on the amount of time required to prepare for de-registration of an aircraft reflects the differing characteristics of each individual jurisdiction’s aircraft registry.
One important characteristic that can affect the time and effort required for successful de-registration is how well the registry is resourced in terms of staffing for the volume of transactions it handles, according to Matthew Xerri, Senior Associate in Ganado Advocates’ Ship Finance and Aviation practice.
Another key characteristic for the amount of de-registration preparation required is the registry’s set of rules and requirements for issuing customs export certificates of airworthiness. This can be a particularly complex area.
In the case of the FAA, the airworthiness regulator will not issue an export certificate of airworthiness to an aircraft which has already been de-registered. So the aircraft has to be re-registered back on the original registry — for the USA, the FAA Civil Aviation Registry — before the authority will award the certificate, says Burgess.
Malta has the same requirement, but as a member of the European Union it usually only issues export certificates of airworthiness when the aircraft is due to be re-registered in a non-EU country, Xerri adds.
Before de-registration, if an export certificate of airworthiness is required the aircraft must undergo an inspection and have its fireproof ID plate removed, and its Mode S transponder and Emergency Locator Transmitter codes wiped.
This process is usually conducted by a Continuing Airworthiness Maintenance Organization (CAMO), with which the owner of the aircraft must agree a downtime slot for the work to be performed.
Ganado Advocates advises its clients to apply to the Maltese registry for de-registration four weeks before they want de-registration to occur. De-registering an aircraft too early can be costly. Re-registration to the original registry in order to obtain a required export airworthiness certificate can take time, during which the aircraft remains de-registered.
After more than two weeks, continuous clear title and proof of airworthiness may be lost from the point of view of the airworthiness authority of the country which operates the destination registry on which the owner is applying to have the aircraft re-registered, warns Burgess.
This is one of the most common mistakes that owners who haven’t done their de-registration homework make, he says.
Documentation and Inspections
Re-establishing proof of title and airworthiness can be an expensive process, as can be rebuilding the required maintenance documentation for an aircraft, if it is lost for any reason during the de-registration/re-registration process.
Burgess cites one instance of an owner needing to spend $800,000 on rebuilding the documentation for one business jet, in a process which took eight months, during which the aircraft could not be re-registered or fly.
A third important characteristic which varies among national registries is whether or not the registry requires the aircraft to undergo an airworthiness inspection before it issues the export certificate of airworthiness to allow customs clearance.
Mexico and Brazil both require such inspections before an aircraft can be sold from their registries, says Burgess — and both have mandated that the inspection must take place in the country of pre-sale registration.
If it has not already been inspected by the Mexican authorities, any aircraft due to be sold from the Mexican registry and be registered elsewhere must return to Mexico for its pre-sale inspection before it can be de-registered.
That is often not an onerous and overly expensive task for owners of aircraft due to be re-registered in the USA, because the two countries share a border. But the same requirement by Brazil can make a return to that country for pre-sale inspection and then a consequent delivery to the USA a rather more time-consuming and expensive matter, Burgess notes.
From the inspection viewpoint, it is equally important for those wishing to register an aircraft in a new jurisdiction to find out whether the aircraft needs to undergo a preregistration inspection in that country.
Any work needed for the aircraft to be deemed airworthy in that country must have that work performed before the aircraft is allowed to fly with its new registration.
Centralized and Non-Centralized Registries
Yet another key national-registry characteristic which can affect the time it takes to de-register an aircraft is whether the registry is centralized or non-centralized, according to Bill Clark, Founder of YYZlaw.
The most important difference between the two types of registry is that, while centralized registries hold documentation of all of the financial and legal interests and obligations in the aircraft, non-centralized registries do not, according to Clark.
Canada is a non-centralized registry (as is Mexico), but the US registry is a centralized registry. Obtaining details of all of the financial and legal obligations and title interests in an aircraft on a non-centralized registry can take owners more time than it can owners of aircraft on a central registry.
Neither Canada nor Mexico require involuntary liens such as Mechanics’, Hangar Keeper and Fuel liens to be filed with the registry, whereas the FAA does, according to Burgess. (However, the FAA does not require tax liens to be filed with the Civil Aviation Registry.)
Regarding the time and advance planning required for de-registration, another important difference between the Canadian registry and the US registry is that Canada does not have an instantaneous de-registration process, according to Clark, whereas the FAA registry’s filing system allows instantaneous de-registration.
Transport Canada officially has a 60-day de-registration service (though firms, such as YYZlaw, which have close and frequent contact with Transport Canada usually can accomplish the process much more quickly than that for their clients).
Unprepared owners who haven’t planned adequately for a possibly protracted de-registration process when selling their aircraft internationally can be caught out by this, sometimes expensively.
“De-registration from Canada can be delayed, and foreign buyers do not like to release funds or redeem anything until de-registration has occurred,” says Clark.
Owner and Operator Registries
Also important as a characteristic is whether the register is owner-based — like the FAA registry in the US — or operator-based, like that of Malta, according to Burgess. To allow registration on some owner registries, the owner must usually be a citizen or a permanent resident of that country.
However, in the FAA registry’s case, there are three other mechanisms by which beneficial owners who are not citizens or permanent residents of the US can legally have their aircraft allocated a US registration. (The US and Australia are the only two countries with owner-based registries which allow registration for aircraft with title held by the equivalent of non-citizen trusts, according to Clark.)
For the FAA Civil Aviation Registry, the three mechanisms are:
The first two mechanisms require that legal title to the aircraft be vested in one of the two types of trust, which are administered by legal trustees — of which the largest as regards business aircraft beneficial-owner trusteeship are the Bank of Utah and TVPX, says Burgess.
The third mechanism requires that the aircraft be registered to a corporation based in a US state or territory, and that at least 60% of its operations are within US states and/or territories.
However, while an operator-based registry might well require that the aircraft’s operator possess an AOC issued by the airworthiness authority of the country in question, and thus effectively have citizenship in that country, in many cases the actual owner of the aircraft need not necessarily be a citizen of that country, according to Burgess.
With that said, if the owner of an aircraft registered on an operator-based registry wants the aircraft to be operated for commercial charters, the owner and operator must provide the registry with a substantial amount of documentation to prove the operator is indeed operating the aircraft on behalf of the owner, says Xerri.
In Malta’s case, the two parties must provide the registry with a lease or management agreement which proves the operating arrangement exists. The operator must provide the registry with its AOC, to prove both that its AOC is valid and also that the specific aircraft to be operated for the owner is listed on the AOC.
And the owner needs to show the registry the bill of sale to prove ownership, as well as the de-registration certificate from the previous registry, and also documentation showing that the aircraft is free from encumbrances.
If a mortgage or other financial arrangement does exist on the aircraft, the owner must provide documentation showing that. Meanwhile, a corporate owner also needs to show the registry its articles of incorporation or other legal documentation proving its legal existence as a corporation.
Last but not least, the owner and/or operator must show the registry all of the aircraft’s technical documents to prove it is airworthy and can legally be allowed to operate, including its radio license, its airworthiness certificate, its insurance policies, photographs showing that the aircraft bears the right registration, and its aircraft manuals.
In all de-registration transactions, “Having enough advance notice is always crucial,” both for the registry and for the owner, says Xerri.
And so is “having a clear picture of what needs to be done regarding who will be the operator of the aircraft,” and knowing the owner’s intention as to whether the aircraft will be operated privately or operated commercially for charters.
As an operator registry, Malta allows aircraft to be registered by operators which have an Air Operator’s Certificate (AOC) issued by Transport Malta’s Civil Aviation Directorate.
The diversity of legal opinion surveyed by AvBuyer on the advance timing required for planning and arranging de-registration also reflects each jurisdiction’s particular legal framework covering matters such as customs exportation and importation; how any required documentation must be transmitted; and tax and insurance considerations, according to Burgess.
For instance, he outlines the complicated sequence of transactions which would be required for an aircraft which hypothetically is to be de-registered from the German registry and then re-registered on the FAA Civil Aviation Registry to an owner trust which is holding the aircraft legally for an owner based in Colombia, who wants to base the aircraft in Colombia.
The nature — and in some cases absence — of diplomatic relationships between certain countries can be very important in de-registration and re-registration decisions, as can the aviation community’s general view of how suitable a particular jurisdiction is from the aircraft remarketing and resale value viewpoints.
Financiers and insurers of aircraft are most comfortable with registration being in those jurisdictions which signed the Cape Town Treaty — formally known as the Cape Town Convention on International Interests in Mobile Equipment — and thus joined the International Registry for filing of security and other interests in aircraft.
These countries all allow aircraft to be repossessed internationally by lessors or other financiers in the event of financial or other contractual default.
Insurance underwriters can be influenced by bilateral and multilateral diplomatic relations between countries, and also by the levels of war and terrorism threat in particular geographic areas or regions. This is particularly true for underwriters of political-risks insurance on aircraft, and they may be unwilling to underwrite that type of insurance for aircraft registered or based in certain jurisdictions.
“The underwriting market is very tight right now — it’s a lot easier to get a quote for an FAA-registered aircraft, but based somewhere else then it is the other way round,” says Burgess.
Re-marketability, and Personalized Registrations
Additionally, “You should always think of re-marketability,” says Mark Bisset, Head of the Aviation Finance Unit at London-based, globally present law firm Clyde & Co. “Clearly the US is the biggest market, and many brokers would say it enhances an aircraft’s re-marketability if it is already on the ‘N’ register [FAA Civil Aviation Registry].”
Additionally, “Having a CAMO’s oversight of the aircraft is important in [maximizing] resale value,” says Burgess. “It’s more important than where the aircraft is registered, in many cases.”
Bisset also cites each individual registry’s responsiveness, and its speed and quality of service, as important factors in determining if an owner finds a given register a suitable one on which to re-register its aircraft.
But several other considerations can weigh with owners in deciding where to re-register their aircraft, whether or not it is newly purchased or is transferring registries for operational or citizenship reasons.
One is the jurisdiction in which a preferred charter operator is domiciled, in cases where owners want to have their business aircraft make money for them, says Bisset.
Another is the perception — misguided or otherwise — on the parts of some nations’ citizens that certain other countries’ governments would make use of any aircraft registration documents filed in those countries to look into aircraft owners’ private financial affairs, Bisset adds.
And, yet another is that certain national jurisdictions’ registration prefixes and suffixes lend themselves to personalized registrations, rather like the personalized license plates available for cars.
Recently, the Isle of Man with its ‘M’ prefix and Guernsey’s ‘2’ prefix, both followed by a dash and then four letters, have particularly seen this practice, with individual registrations like M-AGIC and 2-COOL proliferating.
The Most Vital Factor of All
However, probably the most important consideration of all for any owner considering de-registering an aircraft for sale and re-registration by a new owner on another registry, or even by the same owner just wishing to change registries for operational or other reasons, is the need to make sure the aircraft meets the airworthiness requirements of the country of new registration.
Before de-registering and seeking to re-register an aircraft, owners and prospective buyers should “check for any Supplemental Type Certificates (STCs) that are installed on the aircraft,” YYZlaw's Monfared advises.
National airworthiness rules and criteria differ from country to country, and if an owner fails to find out what all the STCs are for a particular aircraft are, “you might not be able to register it if the destination registry hasn’t approved a particular STC that is installed on the aircraft.”
Monfared cites the example of a Falcon 900EX which was de-registered from the FAA registry, destined for Canada, but then it was found that the divan in the back of the aircraft had an STC which Transport Canada had not yet approved. As a result, the aircraft had to be re-registered in the US, with a non-citizen trustee, for about nine months — the period it took for Transport Canada to approve the STC.
Another, somewhat less expensive, but still exasperating, mistake was the $27,000 modification bill for an EASA-approved stick shaker in an aircraft to be removed and replaced by an FAA-approved stick shaker during a US re-registration process.
“This is very important because of the cost implications,” says Bisset. “Buyers need to be aware of this and get an inspector to look at the aircraft,” to verify what modifications (if any) need to be made to allow an aircraft to meet the airworthiness regulations in its planned new jurisdiction. “This can be difficult at the moment because of the Covid-19 restrictions, and there is a shortage of inspectors” currently.
Advice From the Experts
The most important watchword for owners or buyers seeking to re-register an aircraft is “patience”, according to Clark. “Undertaking an international business-aircraft transaction is a six-week process, if not more.”
In many cases the aircraft will require a pre-purchase inspection by a CAMO, which will take two weeks. Then the client and the CAMO will have to spend about a week discussing what, if any, repairs might be required. Then more downtime might be required to perform any required repairs. “So at least six weeks in advance, you have to start focusing on it,” he advises.
Aquilina has equally valuable advice for those wishing to de-register and re-register a business aircraft. “Never assume one jurisdiction is like another, and that one jurisdiction is the same as another,” he says. “Some clients tend to assume too much. Don’t take anything for granted.”
To achieve de-registration and re-registration with the minimum of fuss, “the key is to get good, qualified help to put the plan together, and then shepherd the plan to get everything to where it’s supposed to be,” concludes Burgess. “These things involve cost, but it’s less if you plan for them, rather than having to unscramble the omelet” after failing to plan ahead.
Find more articles on aircraft ownership, including aircraft registration, on AvBuyer.
For more information, visit:
Aviation Legal Group, www.aviationlegalgroup.com/
Clyde & Co, www.clydeco.com
Ganado Advocates, www.ganado.com