NAFA Administrator posted an articleThe GAO Report Affects Dealers Too see more
NAFA member, Debbie Mercer-Erwin, President of Wright Brothers Aircraft Title, discusses the latest report from the Government Accountability Office (GAO) regarding the FAA Registry practices.
The much-awaited report from the Government Accountability Office (GAO) regarding Federal Aviation Administration (FAA) Registry practices was released in March, and the title is telling: “FAA Needs to Better Prevent, Detect, and Respond to Fraud and Abuse Risks in Aircraft Registration”.
The FAA is responsible for issuing aircraft registration to individuals and entities meeting certain requirements: US citizenship, permanent/physical address, completed application, and bill of sale, among others.
They are also permitted to issue dealer certificates, or licenses, in support of aviation commerce – the same requirements apply, with the addition of substantial engagement in manufacturing or selling of aircraft.
The main purpose is to allow manufacturers and dealers to conduct test flights for prospective buyers. To this effect, dealers can obtain more than one certificate, as well as use a certificate for any aircraft they own. The license is also generally valid for a dealer’s agent, employee, or prospective buyer.
In 2018, approximately 71,000 registration applications and nearly 10,000 dealer certifications were processed at the FAA. Registering an aircraft for a 3-year period brings a $5 application fee, while a 1-year dealer license is $10 (plus $2 for additional certificates).
At such a low amount – that in fact hasn’t changed since 1964 – FAA operating costs associated with processing applications aren’t even covered. This has left US taxpayers funding the Registry for decades.
Likewise, there has been nothing left over, or even earmarked, to enable the FAA to increase vetting of registrants, which is a top priority in the GAO’s report. Specifically, the report was based on analysis of FAA Registry function and ability to handle fraud and abuse risks in aircraft registrations, including dealer certificates.
It’s well known that the FAA has generally relied on self-certification of registration applicants’ eligibility, requiring limited personally identifiable information (PII) that typically isn’t verified – the GAO’s report covers this factor in full, saying that the FAA’s focus on the completion of required documents limits their ability “to prevent fraud and abuse in aircraft registrations, which has enabled aircraft-related criminal, national security, or safety risks”.
The GAO also discovered that the FAA does not routinely consider data from the Office of Foreign Assets Control (OFAC) in the application process – which discounts individuals or entities who are currently under sanctions.
Similar happens with dealer certificates – the FAA does not verify identity, check for prior violations, or enforce requirements. In fact, FAA regulations do not contain any “enforcement mechanisms to ensure continued dealer eligibility once approved or at the time of renewal”.
Because of these issues, as the GAO analysis discovered, fraud can occur. In one case, discovered years after the scheme had been enacted, a broker used falsified registration applications and bills of sale (with forged signatures for over 20 aircraft) to acquire $3 million from a bank.
The broker wanted to save his failing aircraft sales company, and essentially pledged 22 aircraft he didn’t own as collateral to do so. This person was also a licensed dealer who even renewed his certificate while implementing the scheme. Unfortunately, the FAA’s application process didn’t catch the fraud, and resulted in some of the rightful aircraft owners being temporarily grounded.
What does all of this mean for dealers though? In the end, the GAO made fifteen recommendations to the FAA. While they are all pertinent to the issues GAO discovered, a handful will affect dealers directly.
To begin, collecting and recording information on individuals and legal entities not traded publicly (including each individual and entity that owns more than 25% of an aircraft), with subsequent PII elements possibly required (see Recommendations 4 & 5).
Further, Recommendation 6 says the FAA “should verify aircraft registration applicants’ and dealers’ eligibility and information”.
As stated above, PII elements are currently limited and not verified by the FAA, but with these recommendations, would be verified and possibly increased based on an initial risk assessment – requiring more documentation (and time) to obtain a license, but reducing the risks associated with limited review of ownership information.
Recommendation 7 is also a huge factor in future dealer certifications, calling for increased registration and dealer fees to cover the cost of collection and verification efforts.
The FAA readily agreed to the GAO recommendations, having already begun massive modernization efforts under the Civil Aviation Registry Electronic Services (CARES) Initiative to increase efficiency and security.
CARES is scheduled for completion by October of 2021 and is widely expected to streamline and automate the aircraft registration process, along with dealer certification, by making FAA records electronically, and publicly, available.
The goals: allow submission of electronic applications and forms, improve controls, automate registration processes, and improve online data availability – which will expand FAA’s ability to secure against fraud, and make it easier to perform cross-agency checks.
Stemming from the FAA Reauthorization Act of 2018 (check out our highlights), and followed by the Office of the Inspector General (OIG) report on implementing the update, the Registry is well on its way.
It is always important, however, to hire a company that knows the ins and outs of the FAA system to avoid errors in closing that could take time and money to correct – and it is especially so now. There are plenty of questions surrounding the accomplishment of all these efforts and recommendations, including:
How much ownership information is going to be made public, or government-access only? How much will registration and dealer certification fees increase to appropriately cover operation costs? Will FAA be tasked with more oversight and enforcement, and if so, how much time will that add to the registration process, and closing times?
Ultimately, the changes ahead will modernize the FAA’s Registry, helping to bring the aviation industry up to date in technology, efficiency, and security. There is still work to do, but we remain confident that every entity involved in this endeavor will fulfill expectations.
The FAA has not officially responded to the GAO’s report, but they have updated their website regarding the CARES Initiative.
This article was originally published by Wright Brothers Aircraft Title on June 16, 2020.
Update: Additional Change to FAA Public Documents Room Due to COVID-19 see more
NAFA member, Debbie Mercer-Erwin, President of Wright Brothers Aircraft Title, Inc., shares additional updates on the FAA Civil Aviation Registry and Public Documents Room.
The FAA's Civil Aviation Registry has made another important change to their Public Documents Room (PDR) procedures in light of the continued spread of COVID-19, or Coronavirus.
After multiple changes made last week in order to protect their employees, permit-holders who regularly access the PDR, their families and the public at large, they have taken a significant new measure.
As of Tuesday, March 24, 2020, the Civil Aviation Registry will quarantine "all incoming physical documents, including priorities, for 72 hours."
The Coronavirus is able to survive on surfaces for up to several days, which heavily increases employee exposure to the virus.
There will be no change in processing timelines of priorities submitted via the email portal, which was made available in the initial procedure changes.
However, the "20 page email maximum" referenced in those initial changes is now lifted for priority cases - multiple submissions can be made if the file is too large to be accepted at once.
The FAA continues to try to mitigate transmission of Coronavirus while providing essential services and minimizing negative impacts.
For more information and assistance please contact your local agent.
Using Digital Signatures in Aircraft Title & Registration see more
NAFA member, Debbie Mercer-Erwin, President of Wright Brothers Aircraft Title, discusses the use of digital signatures in the aircraft title and registration process.
It is an exciting topic and a fundamental priority for Wright Brothers Aircraft Title (WBAT) to stay current with technology, especially when it has the potential to increase efficiency and security in our services, as well as help reduce time and cost in transactions for our clients. We are always looking forward to how our company could put certain applications to use, even Blockchain in Aviation Escrow Transactions. For this month’s topic, we don’t have to guess though.
One huge hindrance to efficiency in aircraft title registration is the paperwork involved – handling and distributing numerous paper documents between multiple parties, whether in the United States or internationally. Printing, signing, mailing – more than once if corrections are needed, let alone if the documents are lost in the mail altogether – is enormously time-consuming.
WBAT wanted to find a way to streamline certain processes and reduce our amount of paperwork, while maintaining a high level of security – to save time and money within our business and for our clients. We were immediately interested in the use of Digital Signatures, which is a specific implementation of an electronic signature (eSignature).
The US Federal ESIGN Act defines an eSignature as “an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record”. A Digital Signature takes this a bit further with the addition of encryption/decryption technology – securing the data associated with an electronically signed document and creating a robust audit trail.
Digital Signatures have been used for electronically signing an array of documents – sales contracts, offer letters, lease agreements, liability waivers, financial documents, etc. – and are legally enforceable in most business transactions throughout most of the world.
We needed to make sure this solution would work with multiple signers on complex documents though and be compliant with the Federal Aviation Authority guidelines, including their Notice of Policy Clarification for Acceptance of Documents With Digital Signatures (81 FR 23384), which requires Digital Signatures – traceable and digitally encrypted – not just eSignatures.
DocuSign was the clear answer for our business – meeting some of the most stringent US, EU, and global security standards, and using the strongest data encryption technologies available. It also happens to be the leading eSignature brand, with the ability to:
- Easily upload and send documents for signing
- Sign at any time, on a wide variety of devices, from nearly anywhere
- Check signing status and send reminders to keep things moving forward
This software has enabled us to get agreements done faster with fewer errors, which directly translates to lower cost, for our business and our clients. We’ve accomplished this with using Digital Signatures mainly for Bill of Sale and Application for Registration documents, which directly benefits our buyers and sellers.
There are more benefits on the horizon though with more widespread use of this technology. With more lenders in the industry using Digital Signatures, it might not even be necessary to presign a release of the lien. Instead, the involved parties would digitally sign at closing when money is distributed, reducing the risk for all.
We’re excited to see where this technology takes us and the aviation finance industry. In the meantime, we’re thrilled with the results we’ve already seen and the time and cost savings we’re able to pass down to our clients.
This article was originally published by Wright Brothers Aircraft Title on September 16, 2019.
OIG Reports on FAA Registry Update - What Does It Mean? see more
NAFA member, Debbie Mercer-Erwin, President of Wright Brothers Aircraft Title, discusses the OIG, the FAA Registry Update, and what it means for the aviation industry.
There are changes ahead that will modernize the Federal Aviation Authority (FAA) – bringing it up to date with the latest technology and security measures. One of the key updates will be to the registry system, which is vital for ensuring aircraft are legally owned, maintained, and operated.
The deadline for the huge overhaul is now October of 2021, which doesn’t seem that far away. The Office of the Inspector General (OIG) recently issued a 29-page report – “FAA Plans to Modernize Its Outdated Civil Aviation Registry Systems, but Key Decisions and Challenges Remain” – regarding the progress the FAA is making in order to meet the modernization mandate.
The OIG delved into what they think the FAA needs in place to complete the required upgrade on time – their report put into question whether it could be accomplished, stating: “The Registry’s systems are outdated, and FAA has yet to develop a detailed plan for modernization.”
The FAA’s plans are not the only consideration in the timeframe though, given the Congress factor. Because “the regulations that govern aircraft registration do not reflect current technology or business practices”, modernizing the FAA’s registration system will require rulemaking by Congress, which can take some time.
A Modern System
This is a significant update to the Registry – many provisions were implemented with the Reauthorization Act of 2018 (HR 302) – which Wright Brothers Aircraft Title covered in more depth in Highlights of the 5 Year FAA Reauthorization Act.
The new registration system, Civil Aviation Registry Electronic Services (CARES), “is expected to streamline processes, allow for the submission of electronic applications and forms, improve controls, automate registration processes, and improve online data availability” according to the FAA. Its key aims are:
- Web-based access to all public data. For the first time in history, the general public will be able to view FAA records online in real time. Currently, what isn’t already electronically maintained is held in the Public Documents Room (PDR) available for those who have access. Any electronic records are only in real time via the computers at the PDR – outside access is limited to information that is updated once daily.
The modernization mandate includes digitizing all aircraft registration documents for real-time, public and web-based access, which means phasing out the PDR at the FAA. Furthermore, using the PDR will incur a fee if the business could have been conducted by electronic means as efficiently.
- Automation of application services (processes and procedures). For the first time in history, the general public will also be able to file any document electronically. Most aircraft registration functions still require paper documents that are manually scanned and reviewed by Registry examiners. Digitizing and automating the registration process means the role of FAA examiners will change, becoming more high-level.
In Order to Proceed
Detailed estimates of technical and operational requirements for the new system are vital right now – anticipating the rulemaking, cost and schedule that will be necessary to successfully complete the expansive project. Some key questions need to be answered:
What are the new components/upgrades needed in the new system? The FAA is considering: automated approvals for low-risk applications; automated verification of fraudulent or incorrect submissions; additional security controls such as crosschecking information with non-agency entities; the registry structure, including combining aircraft and airmen systems; and matters of data storage with a cloud- or server-based system.
How will the FAA fund the new system?It hasn’t been decided yet – funding modernization projects usually comes from its facilities and equipment (F&E) account, but they may be able to use money from its operations and maintenance (O&M) account. This must be decided before it becomes a part of the agency’s budget.
What rulemaking via Congress is necessary in order to proceed?The FAA will have to develop a rulemaking that revises current regulation and allows for the electronic registration of aircraft –to improve controls, strengthen requirements, and implement digital signatures and electronic payments – a complete outline of the new system is needed beforehand to know exactly what rules to change
Now What? – The Challenges
The OIG report contained four main recommendations to the FAA. The FAA accepted and outlined a schedule for implementing them:
- Develop and implement timeline for making key decisions regarding CARES by May 31, 2019.
- Define desired capabilities of CARES by Dec 31, 2019
- Develop and implement a procedure to obtain industry feedback by Oct 31, 2019.
- Develop and implement a plan for maintaining real-time access to data by June 30, 2019.
There are challenges to face though, including: the transfer of a huge amount of data (with a lot of outdated/large files) to a new system; meeting the needs of registry users – aircraft title companies, financial institutions, aircraft manufacturers, airmen, other government agencies etc. – to ensure the operation of aircraft worldwide; and addressing workforce issues arising from role changes.
The Transition & After
The OIG has concerns, but if the FAA stays on track with this schedule, they can meet the October 2021 deadline, barring delays with Congressional rulemaking.
Updating and modernizing the new system will be a great improvement, but will not fully alleviate all of the pitfalls to closing yourself that we outline in our blog, Can’t I Handle My Own Aircraft Closing?. It will still be important to hire a company that knows the ins and outs of the FAA system to avoid costly errors that could take time and money to correct.
Ultimately, the changes ahead will modernize the FAA’s registry system, helping to bring the aviation industry up to date in technology and security measures. There is significant work to do, but we’re confident that every entity involved in this important endeavor will fulfill expectations.
This article was originally published by Wright Brothers Aircraft Title on their blog on July 16, 2019.
Aircraft Guaranty Corporation Turns 30! see more
FOR IMMEDIATE RELEASE
OKLAHOMA CITY, Okla. – Feb. 26, 2019
Aircraft Guaranty Corporation (AGC), one of the most well-respected trustee service providers in the aviation industry, is excited to announce their 30th year in business. Founded in 1989 by Dr. Connie Lee Wood and his wife Mary, AGC began in order to simplify the aircraft registration and re-registration process for entities who cannot meet the Federal Aviation Administration (FAA) citizenship requirements, providing a safe and lawful way to do so.
The formation of Aircraft Guaranty Corporation responded to the need for informed and personable trust companies. Trusts were initially established for use by airlines, which are publicly traded, and foreign aircraft manufacturers that have facilities in the U.S. Both are essential for the operation of aircraft in the U.S., but neither meet the citizenship requirements for registering at the FAA. Trust structures evolved since this early construct to legally benefit more than just airlines and manufacturers, continuing growth and development in the aviation industry.
Based on the founders’ strong work ethic and impeccable service standards, Aircraft Guaranty Corporation has grown to be a renowned trust company led by Debbie Mercer-Erwin, who bought the company in December of 2014. AGC now controls over one billion in aircraft value across sixty countries. With 30 years of experience and over 2000 aircraft registered in more than 160 different countries, the company handles their clients’ transactions with knowledgeable, dependable and responsive service.
AGC’s professional team has vast experience in aviation, international business and tax law, ensuring that their clients’ aircraft is properly registered at the FAA in Oklahoma City. The company’s straightforward procedures, attorney-created documents, and easy to use website make aircraft registration as secure, uncomplicated and timely as possible. Aircraft Guaranty is highly reputed for adhering to FAA, state and federal regulations in registering and maintaining the titles of their clients.
Owner and President of AGC, Debbie Mercer-Erwin, embraced the opportunity to grow this business and infused it with her trademark passion for serving clients and building long-standing relationships. She attributes much of her success in the industry to personalized, prompt service. Debbie is also the owner and founder of Wright Brothers Aircraft Title, one of the most well respected, recognized Title & Escrow Companies in Oklahoma City. With her knowledge of aviation, keen insight and reputation for integrity, continued growth is expected for both businesses.
About Aircraft Guaranty Corporation:
Founded in 1989, Aircraft Guaranty Corporation has become one of the most well respected and trusted Trustee Service providers in the aviation industry. Over this long tenure, they have registered over 2000 aircraft on behalf of clients from over 160 different countries worldwide. AGC prides itself on service and expertise, with a professional team of employees and legal advisors well equipped to make their clients’ transactions run as smoothly as possible. For more information about AGC, visit agcorp.com.
This release was originally published on Aircraft Guaranty's Blog on March 1, 2019.