- 25 Aug 2021
- Chris Kjelgaard
Aircraft owners must be proactive to protect their aircraft ownership and operating information from public disclosure. Having previously identified some of the key areas where information may be publicly available, James Janaitis, Counsel with Crowell & Moring’s Aviation Group, explores methods to help safeguard your privacy…Back to Articles
Once you have understood what information is publicly available that may compromise your privacy in relation to private aircraft ownership and operation, you are primed to consider the strategies you can take to prevent your information from being easily accessed.
Fortunately there are a few, as we will explore over the following paragraphs.
Special Purpose Entity
The use of a Special Purpose Entity (SPE) would entail setting up a corporation or LLC in a state of the owner’s choosing, and having the SPE own the aircraft. The FAA Registry would only show the name of the SPE as the owner, so the SPE should have a non-descript name, such as ‘ABC Holdings, Inc’, or ‘N1234, LLC’.
Because the FAA does not permit the use of a registered agent’s address on a registration application, the owner would need to include their physical address on the registration application, which would then be readily available to the public through the FAA Registry website.
Additionally, depending on the state of the organization, some of the information filed when setting up the SPE may be publicly available through the state’s corporate registration database.
The other alternative is to own the aircraft in a trust. Trust arrangements are commonplace in the aviation industry, and there is a number of companies that specialize in these products. They generally involve a trust agreement, which creates the trust, and a lease or operating agreement whereby the aircraft is leased from the trust to the individual or company that will operate the aircraft.
Trust arrangements tend to be more expensive than using an SPE, with an initial set-up fee and annual fees of a few thousand dollars each. It is also strongly recommended that an aviation attorney review the trust documentation in advance, which adds to the overall cost.
How effective are LLCs and Trusts? The use of an LLC or a trust is a relatively simple method of protecting an owner’s information from being readily available on the FAA Registry’s online database.
However, with some basic knowledge about the FAA Registry an individual could easily obtain the publicly-available information on the LLC Statement or Trust Documents, as discussed in Part 1 of this series.
These methods are likely to protect an aircraft owner’s information from curious people who see an aircraft and want to know who owns it, but are unlikely to protect their information from the press or other, more sophisticated, parties with a particular agenda.
Double Trust Ownership Structure
Another alternative that provides an additional level of privacy is the use of a double trust aircraft ownership structure. This involves a standard ownership trust arrangement, but the trustor of the ownership trust is another trust, and not the aircraft owner. This second trust is established in a state that doesn’t require public disclosure of the trustor’s beneficial owner.
The cost of utilizing a double trust structure is higher than a standard trust and the complexity of the arrangement will result in more involvement by both tax and legal advisors, with concomitant additional fees associated with that work.
How effective is a Double Trust solution? If set up properly, none of the aircraft owner’s information should be publicly available, although the trust company would be required to provide it if requested by the FAA, or in the event of litigation.
Potential Regulatory Risks of Using SPEs and Trusts
A careful legal and tax review of an ownership structure involving an SPE or trust is imperative due to the complex and sometimes counterintuitive nature of the FAA regulations relating to the operation of an aircraft.
This is particularly important if the aircraft is used by multiple related or unrelated parties, and where there is any type of compensation involved, which could include capital contributions into an LLC or accounting credits between affiliate entities.
Although an SPE or trust can help protect an aircraft owner’s identity, it could easily result in violations of the FAA’s operating regulations if not implemented properly under the guidance of experienced aviation counsel.
As described over these first two articles, there are multiple methods that an aircraft owner can utilize to help ensure that its ownership and operating information remains private. The use of an SPE or trust to own the aircraft can ensure that the general public cannot easily access an aircraft owner’s information.
The use of a double trust structure can further enhance protection of aircraft ownership information.
Moreover, taking these steps will provides a basic level of protection from flight tracking software because, while these programs will still show the registration and flight information for the aircraft, only the name of the SPE or trust will be displayed.
We’ll explore privacy considerations in relation to flight tracking software in our concluding article next time.
More information from www.crowell.com/practices/aviation
About the Author
Jim Janaitis is a counsel with Crowell & Moring’s Aviation practice group.
He focuses on helping Business Aviation clients navigate transactions and the complex regulatory challenges that come with owning, operating, and chartering aircraft.
He has extensive experience in the sale, purchase, leasing, and financing of aircraft, and implementing ownership and operational structures tailored to each individual client’s goals.