Aircraft may be owned in trust by a third party on behalf of another in the US. Known as owner trusts, how do these trusts work in relation to FAA regulations? Aircraft Guaranty Corp explores...
Owner trusts were originally developed to support the sale of aircraft by US manufacturers to non-citizen buyers. They also helped facilitate financing and leasing of US airlines who, at the time, were owned by multiple foreign equity partners. As the use of owner trusts has broadened, how do the regulations and practices developed collaboratively between the FAA and the aviation industry work? Aircraft Guaranty Corp explores...
Today’s global economy has created an aircraft market where sales, leases, financings and other transactions involving parties from many locations are not limited to large scale airlines.
As we pointed out in last month’s blog, The Benefits of Registering in Trust, owner trusts are used by many different entities for multiple different reasons.
As the use of owner trusts has broadened, regulations and practices have been developed collaboratively between the FAA and the aviation industry. This blog will outline the safety and security measures that are currently in place for all trust accounts.
Trustee Applicant Requirements
The FAA has long required that an owner trustee applicant provide a copy of each document legally affecting a relationship under a trust. In short, this means that all owner trustees are under the same obligation as all other aircraft owners to comply with FAA laws and regulations.
The obligation to prove themselves to meet the FAA’s requirements is on the beneficiaries of the trust.
To do this, they must provide the potential owner trustee with the following:
Once the beneficiaries provide all necessary documentation to the owner trustees, the trustees are obligated by Know Your Customer laws to thoroughly vet any and all beneficiaries before submitting documents to the FAA. This includes running OFAC checks on everyone they are considering putting into trust.
The 2013 FAA Policy Clarification
In 2013, there was an extensive review of the FAA’s policy for registering aircraft in Trust.
The resulting Policy Clarification gave the FAA more transparency regarding the beneficiaries of the trusts filed at the FAA.
The FAA now requires and reviews all operating agreements or similar side agreements that allow the trustee to transfer control of the aircraft to the beneficiary. Where no such agreement exists, the trustee is required to provide “adequate assurances” as to why, based on a list of what the FAA would consider “adequate assurances.” The FAA is clear that silence on this issue is not sufficient, and that it reserves the right to review all documentsthat affect the relationship established under the trust.
The 2013 Policy Clarification also states that the FAA requires all owners (including trustees) to be able to provide the following information within two business days of its request:
The FAA further expects that a trustee should be able to provide the following information within five business days of the request:
Information about the operator, crew, and aircraft operations on specific dates
Trustees and FAA Requirements
By law, the FAA imposes important safety obligations on all owners of aircraft. This requires that all owners (and therefore trustees) must maintain current information about the identity and whereabouts of the actual operator of an aircraft and the location and nature of the operation on an ongoing basis.
Owner trustees must also provide these operators with critical safety information in a timely manner. They must respond to all FAA inquiries andinvestigations of alleged violations of the FAA regulations.
Trustees work closely with the FAA to vet these trusts and meet the FAA requirements. In fact, owner trustees are able to collect and store more data on the beneficial owners of these aircraft than the FAA, and they keep files ready to respond to an FAA query within the allotted two-day window.
Quality trustees thoroughly vet their trustors long before they ever put them in trust. Because of the nature of the trust relationship, trustees further develop and maintain relationships with their beneficiaries throughout the life of the trust.The use of owner trusts is common for commercial, business, and general aviation.
Trusts are a key part of aircraft manufacturing, sales, service, financing, and other aviation industries in the US and around the globe. Trusts are a viable structure used for viable reasons by countless entities that wouldn’t otherwise be able to register their aircraft in the US.