Patience Is Key for Successful Aircraft Transactions During COVID-19 see more
NAFA member, NBAA, shares a review of their recent webinar about processing aircraft transaction documents during the COVID-19 pandemic.
The FAA Aircraft Registration Branch continues to process aircraft transaction documents during the COVID-19 pandemic; however, the process has been slowed. In a recent NBAA News Hour webinar, experts discussed how to successfully complete aircraft transactions during these challenging times.
Peter Korns, NBAA’s senior manager of tax, operations and workforce engagement, moderated the webinar. Scott McCreary – shareholder and aviation group leader of McAfee & Taft – and Chris Younger – principal at GKG Law, P.C., – provided expert guidance.
The FAA aircraft registry maintains information on more than 300,000 civil aircraft to facilitate aviation safety, security and commerce. The registry accepts and processes documents to register and operate aircraft in the United States, as well as to “perfect” or validate interests in an aircraft, explained Younger. The registry typically accepts filings by mail or commercial delivery services, via email or in person at the FAA Public Documents Room in Oklahoma City, OK.
Several new, temporary policies are in place to mitigate concerns about COVID-19 exposure and ensure appropriate social-distancing practices for filers and registry employees. The Public Documents Room is currently closed for direct filing, although parties may leave documents in a nearby bin for regular pickup by registry staff. All mailed documents are subject to a 72-hour quarantine period, which means those documents will not be processed or file stamped until at least 72 hours following receipt or acceptance. Filers should be aware that due to this quarantine, the accepted date of the documents is not the same as the file stamp date.
Fortunately, the FAA has expanded the ability to file documents by email. McCreary summarized new email filing procedures, including a requirement for documents to be digitally executed through a digital signature program, such as DocuSign. As is the case for mailing documents, an email receipt message does not constitute the date of formal filing with the FAA.
Younger added that import and export processes can also be more complicated as a result of the COVID-19 pandemic. For example, imports from Mexico are subject to a 72-hour quarantine.
The FAA Reauthorization Act of 2018 designated registry employees as “excepted” or “essential employees” in the event of a government shutdown or emergency furlough.
Although it’s unclear if the legislative language is broad enough to cover the COVID-19 crisis, the experts see no signs at this time of a disruption of operations or possible closure of the registry. However, the experts caution this is a fluid situation, and there is no projected timeframe to return to normal registry and transactions procedures.
“In business aviation, there’s always an urgency to get transactions closed,” said Younger. “Now there’s an increased tension because the process is slower to be more protective of FAA employees.”
Aircraft transactions can still be completed, but patience is key.
This webinar, titled “FAA Transaction Guidance During the COVID-19 Crisis,” is just one in a series of educational opportunities NBAA has planned for the coming weeks. Learn more, register for upcoming webinars and view recordings of past webinars on the NBAA News Hour site.
This article was originally published by NBAA on April 13, 2020.
The Difference between Filed and Recorded FAA Documents & Why it Matters see more
NAFA member, Aircraft Guaranty Corporation, discusses what you need to know about filed and recorded FAA Documents.
There is a difference between the filing and recording of documents at the Federal Aviation Authority (FAA), and it matters when it comes to properly registering your aircraft in trust. This article explores the differences between the two and the effects both unrecorded and improperly recorded documents can have on an aircraft’s title and therefore registration in the U.S.
How are documents filed at the FAA?
The FAA has strict rules about how documents being filed need to look. The seller’s name must match the FAA records, only certain titles under signatures are acceptable, there are boxes to check for buyers, and lenders need help releasing outstanding loans or filing new ones. If any documents are not properly filled out when filed, the FAA could refuse to record them, causing problems for a buyer or owner trustee on down the line.
The FAA reviews all documents that are filed at or received by the central registry in Oklahoma City, Oklahoma. For the time being, there is a window in the Public Documents Room (PD Room) where anyone can walk up and hand in a document for filing. The window attendant will stamp the document with the date and time it was received. This document has now been filed at the FAA.
With the digitization of all records, required by the FAA Reauthorization Bill passed on October 3rd, 2018, the PD Room is likely to be less of a factor in timely filings. However, whether in person, by mail, or via the internet, the rules and processes for filing documents remain the same.
How does the FAA record documents that have been filed?
Filed documents are put through a rigorous review process, which can take up to six weeks to complete. The FAA has an extensive list of rules and regulations that documents must meet in order to be eligible for recording. If you’re not familiar with the rules, specifically those that apply to your situation, there’s a good chance that your document will not be in the proper recording format.
Documents that meet all the requirements are stamped a second time with the new date and time reflecting that the document has been recorded by the FAA. They are then placed in the main aircraft file.
Interestingly, in most cases, the priority of recorded documents relates back to the filing date, giving “first in time, first in right” status to recorded documents based on the time they were filed, not recorded. In other words, generally, first to file wins (although this is ultimately decided by a court of competent jurisdiction).
If a document is rejected by the FAA because it doesn’t meet their regulations, it is not stamped as recorded and it is placed in a separate file called “suspense”. The suspense file is publicly available, so anyone can view what was filed and by whom, but questions always arise about the validity of these rejected documents.
Any unrecorded documents that remain in the suspense file of an aircraft create a “cloud” in the title that will have to be addressed before registering in trust. These unrecordable documents have a profoundly negative effect on an entity’s title, and they can be costly and time consuming to fix.
Are all documents that are recorded with the FAA valid?
While the review process is thorough and careful, it is not always the case that a document is properly recorded. In other words, just because a document is recorded doesn’t mean it’s 100% accurate or valid – clouds may exist even for documents that have been recorded by the FAA.
In general, the FAA does not validate the documents that are filed or recorded there. Rather, the registry will record documents if they are submitted correctly and within the allotted time frame.
The validity of all documents is ultimately determined by a court of law in the relevant jurisdiction, but you can be pretty sure that there will be challenges to the validity and priority of documents that have not been recorded by the FAA.
What does this mean to an aircraft owner in trust?
Navigating the rules and regulations related to filing documents with the FAA can be tedious at best. The filing of documents is not necessarily the difficult part of the process – meeting all the necessary FAA requirements to get them properly recorded though is a challenge without industry knowledge and experience.
There are many possibilities for error in the registration process, increasing the amount of time and money spent. It’s complicated and requires experts for error-free and timely filings. The main role of an owner trustee is to represent the interests of the beneficiary, and as such, it is our responsibility to ensure that all documents filed at the FAA are recorded and kept up to date.
This article was originally published by Aircraft Guaranty Corporation on January 8, 2020.
Aircraft Documents: an Important Factor when Purchasing an Aircraft see more
NAFA member Amanda Applegate, Partner with AERLEX Law Group, shares the importance of aircraft documents when purchasing an aircraft.
One important component of most aircraft transactions is the gathering and assessment of all pertinent maintenance records for the aircraft (“Aircraft Documents”). Aircraft owners are required to maintain Aircraft Documents in accordance with 14 C.F.R. § 91.417. The regulations strictly dictate how long Aircraft Documents must be kept, but do not mandate the format or forms that must be used. Among many other items, the Aircraft Documents contain any damage history on the aircraft, an important factor in determining the appropriate purchase price for an aircraft.
An aircraft buyer should conduct a comprehensive review of the Aircraft Documents prior to the purchase to ensure that all of the records are accounted for, complete and in good order. The aircraft purchase agreement should not only require that the seller produce all of the Aircraft Documents in its possession, but should also compel the seller to restore any deficient documents so, at the time of closing, all the records are accurate, continuous and current through the closing date.
Additionally, the review of Aircraft Records is especially important during the pre-buy of an aircraft:
- from a seller that has multiple aircraft;
- from bankruptcy; or
- from a seller currently operating only under Federal Aviation Regulations (“FAR”) Part 91, when the buyer’s intent is to operate the aircraft under FAR Part 135 after the purchase.
When an aircraft is purchased from an owner who has multiple aircraft, the Aircraft Documents may have been maintained in a manner that is suited for the specific needs of that aircraft owner and in compliance with the operations of that particular fleet. However, upon the sale, the Aircraft Documents need to be organized in a manner that is appropriate for a single aircraft operation. This conversion process is often labor intensive so it is imperative that the Aircraft Document review start as early as possible during the pre-purchase inspection phase. It is possible that the Aircraft Document review in this scenario will take longer than the physical inspection of the aircraft. Furthermore, when looking for traceability of time-tracked parts or burn certificates that may be missing from the Aircraft Documents, multiple vendors may need to be contacted in order to restore the Aircraft Documents to acceptable standards.
If the aircraft is being purchased out of bankruptcy, the records review is crucial. Once the purchase is completed, the bankruptcy estate has no obligation (and likely no resources) to help locate items that are absent from the Aircraft Documents transferred at closing. Furthermore, if the Aircraft Documents were not secured while the company was going through the chaos of bankruptcy and closure, then it could be the case that the Aircraft Documents are in disarray at the time of inspection.
Finally, if an aircraft that only operates under FAR Part 91 is being sold and the buyer intends for the aircraft to be operated under FAR Part 135, there are certain records that must be included in the Aircraft Documents in order to place the aircraft on a FAR Part 135 operating certificate. For example, if the interior of the aircraft was refurbished and there are no burn certificates for the seats, then the aircraft cannot be placed on a FAR Part 135 certificate. If the aircraft was only operating under FAR Part 91 at the time of refurbishment, the burn certificates may not have been tracked as closely as they should have been at the time of the work. This deficiency must be remedied in order to complete the Part 135 conformity check.
If, during the inspection, it is discovered that certain Aircraft Documents have been lost, stolen and/or destroyed, then it should be a condition of the purchase agreement that the buyer has the right to terminate the purchase agreement. If the parties want to move forward with the sale, the seller should be required to recreate and restore the missing records. There are companies that specialize in the replacement of Aircraft Documents. The seller should also review its aircraft insurance policy, because the missing records may be covered under that policy.
Ultimately, an aircraft buyer should not purchase an aircraft unless an Aircraft Document review is performed as a condition of the purchase agreement and, if any discrepancies in the Aircraft Documents are found during the course of the inspection, it is the obligation of the seller to fix the discrepancies. If the Aircraft Documents cannot be restored, the buyer should retain the right to terminate the purchase agreement.