Friday, May 5 the FAA has announced that "Effective May 15, 2023, the Aviation Registry Law Practice under the Information Law Division (AGC-400) (formerly Aeronautical Center – Central Region Counsel, AMC-7) will no longer issue aircraft registry opinions to external stakeholders with respect to the registration of U.S. civil aircraft, including, but not limited to, the use of non-citizen trusts and revocable living trusts to register aircraft, and the recordation of aircraft-related instruments." Alexandra Randazzo, Assistant Chief Counsel (A) Information Law Division (AGC-400) confirmed there is no requirement for an FAA legal opinion as part of the registration process, and that the Registry is fully committed to serving the aviation community with the timely administration and processing of applications.
In the past, the Registry has required non-citizen trusts to be reviewed and approved by the Central Region Counsel before the Registry would process documents and register an aircraft. Parties would normally request this review in advance to avoid any delay in registering the aircraft - especially for matters that require a temporary certificate of registration (fly wire) such as imports or flights outside the US. Another instance where the Central Region Counsel review is often necessary involves making the determination as to whether a lease should be treated as a conditional sales contract requiring registration in the name of a lessee rather than a lessor. On the bright side, the FAA confirmed it may still be possible to obtain a review of "novel aircraft registration" issues.
How this change will affect aircraft transactions in the future remains to be seen, but following are some considerations for lenders.
In part, parties would often obtain opinions from the FAA Central Region Counsel in advance of closing in regard to:
a. Confirmation that a non-citizen trust agreement and aircraft operating lease agreement comply with Federal Aviation Regulations and the Non-Citizen Trust Policy Clarification. The CRC opinion provides lenders comfort the aircraft will be properly registered with the FAA and that the registration documents and their security documents will be recorded. The opinions also help expedite the registration of an aircraft in instance where a fly wire is required to operate the aircraft;
b. In certain instances the FAA requires an aircraft be registered in the name of a lessee, rather than a lessor holding title, if the lease is in essence a full payout lease or it contains a nominal purchase option. The FAA’s determination as to whether the lease should require registration in the name of the lessee can be complex, and is summarized in a prior legal interpretation commonly referred to as the Leiter Letter. Without confirmation in advance from the FAA as to the appropriate party to register the aircraft lenders or lessors will be at risk as to whether the proper documents have been filed to register the aircraft and perfect their interest, and for the aircraft to be legally operated.
c. The FAA’s analysis as to whether an entity is a “citizen of the United States” for purposes of registration is often complex, and there are a objective and subjective criteria set out in 49 USC 40102(a)(15). The FAA’s review of Limited Liability Companies in regard to citizenship as well as limited partnerships has been especially cumbersome and problematic over the years. For an aircraft to be properly registered (and arguably a lender to be properly perfected) the applicant for registration must meet the citizenship test, and lenders have often relied on opinions issued by the CRC as to the citizenship of their debtor.
Historically a lender’s ability to obtain opinions in these instances has helped eliminate risk that the aircraft will not be properly registered and the lenders interest not perfected. If the CRC will no longer issue these opinions it may be that the Oklahoma City bar will be requested to address more of these issues in their FAA legal opinions.