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NAFA Administrator posted an articleComparing and Contrasting Domestic vs. Cross-Border Aviation Finance Transactions see more
NAFA member Juan Carlos Ferrer, Partner with Holland & Knight, discusses the important differences between domestic and cross-border aviation finance transactions.
Though there are some similarities between financing an aircraft registered in the U.S. versus financing an aircraft registered abroad, in truth those similarities are vastly outweighed by the differences and complexities associated with a cross-border aircraft financing. The following is an overview of some important differences between domestic and cross-border aircraft finance transactions, as well as some practice pointers to assist in navigating the potential pitfalls of financing a non-U.S.-registered aircraft.
Cape Town Convention
Financing an aircraft registered in a country that has ratified the Cape Town Convention (CTC) can provide comfort to aircraft financiers that they will ultimately be able to timely foreclose on the aircraft should a default occur. Many countries have ratified the CTC, but a surprising number of countries have not. And even among those countries that have ratified the CTC, it is important to fully understand what elections the ratifying country has made to govern creditors' rights in relation to aircraft. Countries that have opted for Alternative A of the CTC afford far greater protections to creditors than those that opt for Alternative B or for reliance on that country's existing insolvency laws.
Owner Registry vs. Operator Registry
The U.S. Federal Aviation Administration (FAA) registry is an "owner-based" registry where the eligibility requirements for obtaining U.S. registration for an aircraft are determined based on the citizenship of the owner of the aircraft. The citizenship of the operator is irrelevant for purposes of registering an aircraft in the U.S. However, most foreign aircraft registries are "operator-based" registries that look to the citizenship of the operator – and not the owner – of an aircraft in order to determine eligibility to register an aircraft in that jurisdiction. Understanding these types of nuances and how to deal with the challenges, as well as the opportunities that they present, is key to properly structuring cross-border aircraft finance transactions.
This article was originally published by Holland & Knight on September 23, 2024.
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NAFA Administrator posted an articleHow To Buy a Bizjet at a Fast Pace see more
NAFA member David G. Mayer, Partner with Shackelford, McKinley & Norton LLP, discusses what it takes and who it takes to successfully complete an aircraft purchase.
No one should buy a used aircraft on the fly. But that does not mean the parties cannot, or should not, move quickly and efficiently to close a purchase. Some prospective purchasers treat buying an aircraft as if it is just like acquiring real estate, a car, or a boat. However, those purchases do not trigger similar complex and intersecting regulatory, liability, tax, risk management, financing/leasing, and technical equipment issues.
Sometimes trying to pace or schedule an aircraft purchase from any point in the deal continuum to closing seems more aspirational than practical. After more than four decades of practicing law, it seems no deal is the same; no deal is “simple;” and few purchases occur without external factors complicating decisions such as the U.S. presidential election, turbulent geopolitics, and economic conditions. How, then, does a purchaser start this buying journey, and what should the purchaser expect to happen?
Transaction Teams
First and foremost, a potential purchaser should hire an aircraft broker with aircraft market knowledge, strong business aviation industry relationships, team-oriented negotiating skills, and economic analysis capability. Some technical consultants also function well as brokers. Such brokers know and, in real-time, can apply to purchase decisions such factors as increasing aircraft inventories, constraints on pilot availability and high compensation, declining interest rates, and fluctuating prices in different aircraft makes and models.
Second—or first to help assess team members—a purchaser should select an aviation lawyer with deep aviation legal knowledge and deal experience, wide industry contacts, and a sense of urgency aligned with the client’s objectives.
Third, the lawyer and broker can and should recommend other appropriate aviation resources, including aviation insurance brokers, tax accountants, technical consultants, FAA counsel, and escrow and trust companies. These people, acting concurrently with the lawyer and broker, can help pick up the pace, facilitate a smooth closing, and enhance the quality of services to the parties.
Aviation professionals understand how to work rapidly, interactively, and responsively in tight coordination with their seller and purchaser clients while avoiding mistakes like those I previously identified (see “AINsight: 7 Avoidable Mistakes in Acquiring a Bizjet”).
Unfortunately, in my experience, some purchasers seem reluctant or decline to incur the expense for these resources, even in large aircraft purchases. They believe their inside counsel or other non-aviation lawyer alone can manage the process and aviation issues. Through no fault of those lawyers, the choice may result in significant mistakes such as operating the aircraft in violation of the Federal Aviation Regulations (FARs), incurring sales tax, structuring to limit personal liability, and reducing federal income tax benefits.
This article was originally published by AIN on September 13, 2024.
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NAFA Administrator posted an articleQuestions to Ask Before Signing an Aircraft Lease see more
Leases are a popular option for aircraft operators, providing flexible access to a platform without the need for large capital investments. But what are the big questions would-be lessees should ask before signing on the dotted line? Gerrard Cowan finds out.
Lessees have different motivations for why an aircraft lease is right for them, so the questions they need to ask will vary depending on why they want to lease in the first place, says Mike Christie, Head of Sales, Americas at Global Jet Capital.
Confirming that the chosen structure will achieve your objectives is a good place to start, he adds.
Global Jet Capital is a major US-based provider of leasing (and other lending solutions) for business aircraft. These include operating leases, where the aircraft is owned by the lessor for the duration of the lease and handed over at the end of the term; finance leases, through which the lessee can take eventual ownership of the asset; and sale and leaseback arrangements, where an owner sells their platform to the lessor and then leases it back, enabling them to free up capital while retaining the use of the aircraft.
What are the Return Conditions at Lease-End?
One of the great benefits of a lease is the ability to simply return the aircraft to the lessor at the end of the lease term. It’s therefore very important to understand the return conditions and process of the lessor, says Christie.
“Do they use internal experts or outside contractors? Is the language clear on what is expected? Are there barriers that may make a return difficult or expensive?”
On top of this, you should ask about potential operational restrictions. Are there annual hour limitations, geographical restrictions or limits on chartering the aircraft? And it can also be insightful to ask the lessor about their commitment to leasing.
This article was originally published by AvBuyer on August 21, 2024.
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NAFA Administrator posted an articleAircraft Purchase Agreements: Are you Paying Attention? see more
An aircraft purchase and sale agreement is the central document in any aircraft transaction, setting forth the most important terms of the deal. Gerrard Cowan with AvBuyer asks industry experts to outline the major focuses in such agreements.
According to Stephen Hofer, President of Los Angeles-based Aerlex Law Group, not only does the aircraft purchase agreement set forth all essential commercial terms of the transaction, but it serves as the roadmap to guide all parties – particularly the seller, buyer, brokers and escrow company – as they navigate their way from the point of signature to the point of closing and delivery.
It is, therefore, vital to pay careful attention long before it comes to signing on the dotted line, he says. When the parties are ready to begin drafting a purchase and sale agreement, they will already have reached a meeting of the minds on the most basic points, such as what is being sold and the sale price.
Complications can arise in determining the delivery conditions, however. “In what condition, exactly, is the seller agreeing to deliver the aircraft at closing?” Hofer highlights.
“Sellers and buyers often have not focused on this issue at the time a Letter of Intent (LOI) is signed, so it’s up to the lawyers, working with their clients, the brokers, the technical representatives and sometimes the Pre-Purchase Inspection facility, to reach a clear understanding of the specifications the aircraft will satisfy at the moment the seller hands over the keys at the delivery location.”
Depending on how the purchase agreement is drafted, the precise language regarding delivery condition can sometimes cost one of the parties thousands, or even hundreds of thousands of dollars because it will help determine what constitutes a discrepancy or ‘squawk’, and who’s responsible for fixing it.
“Very careful attention needs to be paid to the contract at this stage of the drafting,” Hofer stresses.
Aircraft Purchase Agreements Handle the Unexpected
The purchase and sale agreement is central to a transaction not just because it defines an outline of how a deal is to proceed, but because it also contemplates “just about any sort of event, nuance or occurrence that might take place – those that are expected and unexpected”, Janine K. Iannarelli, President of Par Avion Ltd, shares.
Provisions to deal with the unexpected are perhaps the most important element, she says, because there needs to be a means to deal with something like damage occurring to the aircraft in the course of the transaction.
Unexpected events could also involve financial difficulties that impact the buyer or seller and their ability to conclude the deal. Iannarelli says she has even seen deals fall apart because one of the parties has passed away.
“You have to have a means with which to unravel the transaction in a fair and equitable fashion, because you can’t just break a deal,” she highlights. Usually, a financial solution is involved: the forfeiture of the deposit (or part of the deposit), for instance, or specific damages depending on the reason for the default.
This article was written by Gerrard Cowan with AvBuyer, and originally published on July 22, 2024.
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NAFA Administrator posted an articleAINsight: How To Structure Aircraft Co-ownership see more
NAFA member, David G. Mayer, Partner at Shackelford, Bowen, McKinley & Norton, explains co-ownership structuring and sharing the use of an aircraft involving one or more co-owners without engaging in illegal charter operations (134 ½ operations). Regulatory, tax and risk management are critical – among other things. Guard against mistakes.
Owners and potential aircraft purchasers have for a while told me they want to buy or continue to own an aircraft but intend to share ownership with at least one other person. They recognize the value of freeing up capital from the aircraft purchase price, deploying the cash into their businesses or investments, decreasing ownership costs, and sharing the risk of depreciating aircraft values.
Fundamentals of Aircraft Sharing
How do the parties start their shared aircraft ownership experience? Before all else, they should agree to buy and/or share a mutually acceptable aircraft that accomplishes their respective missions. They should genuinely and confidently trust each other to honor their aircraft arrangements.
To avoid false starts or panic when a prospective buyer understands the true cost of aircraft ownership, each party should model and/or consult professionals to ensure that the economics make sense individually and collectively.
The parties should also address the other major issues entailed in sharing an aircraft. Tax planning and limitation of liability—starting with a request to form a limited liability company (LLC)—often surface first. More broadly, the parties should discuss their respective ideas for buying, owning, managing, operating, maintaining, and improving an aircraft as well as sharing costs.
From a legal standpoint, it is critical to comply with the Federal Aviation Regulations (FARs). As the parties plan risk management, they should promptly confirm that adequate insurance is available to cover their aircraft ownership and operations.
This article was originally published by AIN on July 12, 2024.
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NAFA Administrator posted an articleFAA Issues SMS Rules for Part 135 Operators see more
Charter operators will have up to three years to implement a proactive safety system.
Certain aircraft manufacturers and Part 135 on-demand charter and commuter operators will need to implement a safety management system (SMS) in the coming years, according to much-anticipated FAA final rules expanding FAR Part 5 requirements. Depending on the operation type, the rules require those affected to have an SMS implemented in one to three years. However, less restrictive provisions apply to single-pilot organizations.
According to the agency, the rules currently cover approximately 1,848 Part 135 operators, 694 air tour operators, and 65 Part 21 design or production certificate holders (15 of which are already implementing SMS under the FAA’s voluntary program). Additionally, there are 715 letters of authorization (LOA) for Part 91 holders approved to conduct air tours that are required to implement an SMS—362 of these LOA holders have only one aircraft.
“Requiring more aviation organizations to implement a proactive approach to managing safety will prevent accidents and save lives,” said FAA Administrator Mike Whitaker. He noted that the rules also require those who have an SMS to share hazard information with other aviation organizations “so they can work collaboratively to identify and address potential safety issues.”
This article was written by AIN contributor Gordon Gilbert and published in AIN on April 23, 2024.
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NAFA Administrator posted an articlePersonal Liability of Aircraft LLC Owners see more
Piercing the veil isn't as difficult as many LLC owners assume.
My clients usually plan to use a limited liability company to own their aircraft, assuming the LLC will protect them from personal liability. Yet they often do not realize that an LLC is far from a bulletproof shield.
Although LLCs can provide barriers to private third-party claims against their owners, the reality is that certain claimants may cut through an LLC to reach the personal assets of the owner/members and other related parties. Perhaps more concerning, the U.S. government has regulatory and statutory authority that may extend personal liability to more individuals and entities than just owners, including their officers, directors, managers, pilots, and aircraft operators.
This personal liability exposure may come from three or more directions. First, third parties—including those who, for example, make claims for breach of contract, personal injury, or wrongful death—may try to “pierce the corporate veil” to reach into the pockets of LLC owners and others to pay for their claims.
Second, the FAA and the Department of Transportation can tag LLCs, LLC owners and managers, pilots, and others under the Federal Aviation Regulations (FARs) and federal statutes.
Third, the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Treasury Department, acting under the new Corporate Transparency Act (CTA), has few limits in pursuing wrongdoers under the CTA.
This article was written by NAFA member David G. Mayer, Partner at Shackelford, Bowen, McKinley & Norton, and originally published by AIN on May 10, 2024.
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NAFA Administrator posted an articleAINsight: Corporate Transparency Act Descends on Bizav see more
Critical to understand and comply with the new law despite its challenges and invasiveness.
Since January 1, millions of small entities have been required to report sensitive personal information to the U.S. government like never before. These entities include limited liability companies (LLCs) and trusts that often hold title to aircraft for their sole, ultimate beneficial owners (UBOs).
The Corporate Transparency Act (CTA) is the disclosure law, and the Department of the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) is the chief enforcer. This law imposes potentially significant civil and criminal penalties for the failure or refusal to correctly and timely report all required information. Importantly, the CTA intersects with aviation regulations that may compound penalties.
Did the CTA Veer Off Course?
The reporting obligation was clear until March 1, when an Alabama federal district court in the case of National Small Business United v. Yellen (National) decided that the CTA was unconstitutional. The court halted the Department of the Treasury and FinCEN from enforcing the CTA against the National plaintiffs. In a press release on March 4, FinCEN stated that “the government will not currently enforce the CTA against the plaintiffs.”
Because National seems to apply only to the plaintiffs, UBOs and covered entities may decide on a “better to be safe than sorry” approach. To make that decision and avoid violations of the law, it is critical to understand the technical CTA rules and how to comply with them.
CTA Target Individuals and Entities
Unless exempt, the CTA imposes the obligation on “reporting companies” to submit to FinCEN “information about the reporting company [and] beneficial owner information” (BOI) for each “beneficial owner” of the reporting company plus information about the “company applicants.” Let’s unpack these elements that together sum up the CTA’s process and affected parties.
This article was originally published in AIN by David G. Mayer, AIN Contributor and Partner at Shackelford, Bowen, McKinley & Norton, LLP, on March 8, 2024.
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NAFA Administrator posted an articleAINsight: Corporate Transparency Act Descends on Bizav see more
Critical to understand and comply with the new law despite its challenges and invasiveness.
Since January 1, millions of small entities have been required to report sensitive personal information to the U.S. government like never before. These entities include limited liability companies (LLCs) and trusts that often hold title to aircraft for their sole, ultimate beneficial owners (UBOs).
The Corporate Transparency Act (CTA) is the disclosure law, and the Department of the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) is the chief enforcer. This law imposes potentially significant civil and criminal penalties for the failure or refusal to correctly and timely report all required information. Importantly, the CTA intersects with aviation regulations that may compound penalties.
Did the CTA Veer Off Course?
The reporting obligation was clear until March 1, when an Alabama federal district court in the case of National Small Business United v. Yellen (National) decided that the CTA was unconstitutional. The court halted the Department of the Treasury and FinCEN from enforcing the CTA against the National plaintiffs. In a press release on March 4, FinCEN stated that “the government will not currently enforce the CTA against the plaintiffs.”
Because National seems to apply only to the plaintiffs, UBOs and covered entities may decide on a “better to be safe than sorry” approach. To make that decision and avoid violations of the law, it is critical to understand the technical CTA rules and how to comply with them.
This article was originally published by David G. Mayer, Shackelford Law, in AIN on March 8, 2024.
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NAFA Administrator posted an articleNAFA Welcomes New Member: Moore & Van Allen, PLLC see more
FOR IMMEDIATE RELEASE:  February 22, 2024
                                  
Contact: Tracey Cheek   
tlc@NAFA.aero   
405.850.1292   
Melissa Wier
Marketing Manager
melissaweir@mvalaw.com  
704.331.2419 NAFA Welcomes New Member: Moore & Van Allen, PLLC
The National Aircraft Finance Association (NAFA) welcomes Moore & Van Allen, PLLC (MVA), a leading law firm with a dedicated aviation finance practice. MVA's team of over 400 attorneys brings extensive experience in complex aircraft financing transactions, including cross-border deals and structured financing for high-value assets.
“NAFA members form a network of aviation finance services who diligently and competently operate with integrity and objectivity throughout the world,” said Ed Medici, NAFA President. “We’re excited to welcome Moore & Van Allen to our growing organization. Their services enhance NAFA’s available offerings, and we support their services to advance our members.”
MVA's extensive experience in facilitating aircraft financing transactions will directly benefit NAFA members by providing access to invaluable legal expertise in navigating the intricacies of these transactions.
About Moore & Van Allen, PLLC:
An unwavering focus on their clients has led to steady growth as one of the largest law firms in the Southeast. Over 400 lawyers and professionals in over 90 areas of focus represent clients across the country and around the globe, including Blue-chip Fortune 500 organizations, financial services leaders, domestic and global manufacturers, retailers, individuals, and healthcare and technology companies. MVA clients benefit from a strategic, innovative approach to significant business transactions, complicated legal issues and difficult disputes.MVA’s value is rooted in the experience gained over seven decades. Nationally recognized, culturally inclusive and community-spirited, they understand that success for their clients comes from investing in the strength of ideas and the power of collaboration.
To learn more about Moore & Van Allen, PLLC, visit mvalaw.com
About NAFA:  
The National Aircraft Finance Association (NAFA) is a professional association that has been promoting the general welfare of aircraft finance for 50 years. Our network of members is comprised of lenders and product service providers who work together to finance general and business aviation aircraft. NAFA sets the standard for best practices in aviation finance by educating its members on the most up-to-date industry trends and best practices. Government legislation, market influences and industry insights allow member companies to provide the highest quality services the industry has to offer. To add your company to our world-class network of the best in aircraft finance, sign up at https://www.nafa.aero. -
NAFA Administrator posted an articleNAFA Welcomes New Member: Buchanan Ingersoll & Rooney PC see more
FOR IMMEDIATE RELEASE: February 15, 2024
                                 
Contact: Tracey Cheek  
tlc@NAFA.aero  
405.850.1292  
 Terry A. Shulsky
Shareholder
terry.shulsky@bipc.com
412.392.2091NAFA Welcomes New Member: Buchanan Ingersoll & Rooney PC
The National Aircraft Finance Association (NAFA) is thrilled to welcome Buchanan Ingersoll & Rooney PC, a full-service national law firm providing industry-leading legal, business, and regulatory advice, to its esteemed network of aviation professionals. With 450 attorneys and government relations professionals across sixteen offices, Buchanan provides legal services in aviation finance and leasing, corporate finance, banking, bankruptcy, creditors’ rights, litigation, tax, intellectual property, and other practices whenever needed.
“Buchanan Ingersoll & Rooney joining NAFA is a step forward in advancing our mission to improve and facilitate the financing process to support aircraft buyers,” said Ed Medici, NAFA President. We welcome them to our growing organization and enhancing opportunities for all our members.” 
About Buchanan Ingersoll & Rooney PC:
Buchanan attorneys have found solutions that work for their aviation finance and leasing clients in the commercial, business, and private aviation industries for over 30 years. Buchanan enforces their client’s rights under the Uniform Commercial Code to recover and dispose of aircraft, helicopters, commercial aircraft engines and aircraft engine parts, components, tooling, equipment, and machinery used by Maintenance, Repair, and Overhaul (MRO) service providers in the aviation sector. Buchanan can provide the same high level aviation collateral recovery and disposition services to NAFA members.Their depth means they can also support NAFA members by drafting and negotiating documentation with respect to aviation loans, leases, acquisitions, and sales. The result is a highly nimble, hands-on team with forward-thinking creativity and unique, problem-solving ideas to knock down barriers, drive regional competitive advantage, minimize risk and achieve results.
To learn more about Buchanan Ingersoll & Rooney PC, visit Buchanan Ingersoll & Rooney PC (bipc.com)
About NAFA:  
The National Aircraft Finance Association (NAFA) is a professional association that has been promoting the general welfare of aircraft finance for 50 years. Our network of members is comprised of lenders and product service providers who work together to finance general and business aviation aircraft. NAFA sets the standard for best practices in aviation finance by educating its members on the most up-to-date industry trends and best practices. Government legislation, market influences and industry insights allow member companies to provide the highest quality services the industry has to offer. To add your company to our world-class network of the best in aircraft finance, sign up at https://www.nafa.aero. -
NAFA Administrator posted an article100% Bonus Depreciation Extension is Essential Piece of New 2024 Tax Deal see more
On Tuesday, January 16th, 2024 top lawmakers on the Senate and House tax writing committees announced a deal on a wide range of tax issues, including several business deductions facing possible phase down or sunset. Significant to the business aviation industry, the Act specifically extends 100% bonus depreciation.
The legislation, dubbed the Tax Relief for American Families and Workers Act of 2024, extends 100% bonus depreciation for eligible qualified property for qualified property placed in service after December 31, 2022, and before January 1, 2026 (January 1, 2027, for longer production period property and certain aircraft [1].) This change may directly impact 2023 filings, removing the 20% phase-down in the current law [2].
Taking bonus depreciation for a general aviation aircraft requires that the aircraft be used predominately in furtherance of the business activity, be placed in service in the tax year at issue, and that appropriate listed property books and records be maintained. Business form and type, ownership structure, and the nature of the business use may all impact bonus eligibility [3].
While passage remains uncertain, prominent Party leaders from both parties have publicly endorsed the agreement. They face a tight deadline to implement any changes to the tax code with the 2023 tax filing season beginning on Jan. 29.
This article was originally published by NAFA member, Suzanne Meiners-Levy, Partner, at Advocate Consulting Legal Group, PLLC, on January 18, 2024.
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NAFA Administrator posted an articleNAFA Welcomes New Member: Lewis Brisbois Bisgaard & Smith LLP see more
FOR IMMEDIATE RELEASE: February 5, 2024
Contact: Tracey Cheek
tlc@nafa.aero
405.850.1292
Rhonda Maggiacomo
Partner
Rhonda.Maggiacomo@lewisbrisbois.com
Office: 401.406.3321NAFA Welcomes New Member: Lewis Brisbois Bisgaard & Smith LLP
National Aircraft Finance Association (NAFA) is pleased to announce that Lewis Brisbois Bisgaard & Smith LLP has recently joined its network of aviation professionals. Lewis Brisbois’ experienced Business Aviation Practice serves as a strategic client partner with a comprehensive understanding of the federal regulatory and business matters surrounding the financing, acquisition, and operation of business aircraft.
“Lewis Brisbois Bisgaard & Smith LLP joining NAFA is a step forward in advancing our mission to improve and facilitate the financing process to support aircraft buyers,” said Ed Medici, NAFA President. We welcome Lewis Brisbois to our growing organization and enhancing opportunities for all our members.” 
About Lewis Brisbois Bisgaard & Smith, LLP: 
Lewis Brisbois is actively engaged in the representation of clients in more than 40 different practice areas with a multitude of sub-specialties associated with each practice area including an experienced Business Aviation Practice Group. The firm serves as a strategic client partner with a comprehensive understanding of the federal regulatory and business matters surrounding the financing, acquisition, and operation of business aircraft from structuring complex transactions (including drafting and negotiating corporate aircraft purchase and sale agreements) to understanding the intricacies of aircraft financing agreements and reducing liability exposure while capitalizing on both federal and state tax planning options.Lewis Brisbois’ Business Aviation Practice group has experience assisting Fortune 500 companies, large international corporations, ultra-high net-worth clients, and family offices with all aspects of aviation financing for large long-range business jets, commercial aircraft, helicopters, and aircraft engines, including structuring, documenting, negotiating and syndicating aircraft financing transactions for various types of finance structures.
To learn more about Lewis Brisbois Bisgaard & Smith LLP, visit https://lewisbrisbois.com.
 
About NAFA:  
The National Aircraft Finance Association (NAFA) is a professional association that has been promoting the general welfare of aircraft finance for 50 years. Our network of members is comprised of lenders and product service providers who work together to finance general and business aviation aircraft. NAFA sets the standard for best practices in aviation finance by educating its members on the most up-to-date industry trends and best practices. Government legislation, market influences and industry insights allow member companies to provide the highest quality services the industry has to offer. To add your company to our world-class network of the best in aircraft finance, sign up at https://www.nafa.aero. -
NAFA Administrator posted an articleStrategies To Manage Aircraft Financing Costs see more
Cash might be king, but financing still often makes the most sense for business aircraft purchases.
It is hardly a secret that the U.S. Federal Reserve Bank has cranked up the federal funds rate to tame inflation. These rate moves, which raised interest costs, spared no industry, including aircraft lending and leasing. Then, the Fed signaled last month that it might cut the federal funds rate a few times in 2024, setting off rampant speculation of when and how many rate cuts might occur.
Did the Fed announcement mean that aircraft lenders and lessors (financiers) can expect aircraft lending and leasing transactions to take off? No one knows, but even if rate cuts occur and financing shows the potential to soar to new heights, continuing challenges abound for financiers.
The notion that “cash is king” resonates with buyers, and cash still dominates the way many buyers purchase aircraft despite sensible reasons to finance aircraft purchases. Although aircraft lenders seem mostly past the 2023 regional banking crisis, many banks have imposed stricter lending standards, increased loan pricing, experienced heightened regulatory scrutiny, and constricted available funds for aircraft lending.
As a consequence, some lenders will not or cannot seriously entertain aircraft lending transactions without a stellar creditworthy borrower, a bulletproof guaranty, or a strategy to win the purchaser’s business at a higher but acceptable risk.
This article was written by NAFA member David G. Mayer, Partner at Shackelford, Bowen, McKinley & Norton, and originally published by AINsight on January 12, 2024.
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NAFA Administrator posted an articleA Lender's Overview To Perfecting Your Aircraft Interests With the FAA see more
So, your client has set their sights on acquiring an aircraft. Now, it's time to take the necessary steps to protect your interests in the aircraft to secure the loan. This article will delve into the intricacies of perfecting a lien with the Federal Aviation Administration Aircraft Registry (FAA) to ensure lenders secure their interests in aviation assets. 
Importance of perfecting a lienPerfecting a lien is essential for lenders looking to secure their interests in an aircraft used as collateral for a loan. In layman’s terms, “perfecting” the lien will normally establish the lender’s priority in the collateral for purposes of bankruptcy and as to other lienholders or parties claiming an interest in the collateral. As a practical matter, properly perfecting the lien may also play an important role during the selling and buying process as it places parties on notice of the lender’s interest. Potential buyers will almost always conduct title searches and will require the lender’s interest be released prior to or simultaneous with their purchase of the aircraft.
What is perfecting a lien?Perfecting a lien involves filing the necessary documents with the proper authorities to establish a legally binding security interest in an asset. In the aviation world, this process is crucial when an aircraft is collateral for a loan and will normally involve filing or registering the interests as required under the Uniform Commercial Code, the FAA and the International Registry.
A lien may be perfected with the FAA if the lien covers airframes registered with the FAA, engines having at least 550 rated takeoff horsepower, propellers capable of absorbing at least 750 rated takeoff shaft horsepower and spare parts maintained by or on behalf of certain United States air carriers. However, lenders should also understand the intricacies of protecting their security interests outside this scope that still involves the aircraft, such as insurance and aviation management programs.
Understanding your rights under the lawA lender will need to consider many laws in connection with a loan transaction involving an aircraft. Relevant local state laws where the parties are situated or the collateral located may be applicable to the creation of the contractual rights and obligations of the parties, including the Uniform Commercial Code (UCC). Under the UCC, aircraft are treated as personal property and security interests in aircraft are generally formed under Article 9 of the UCC. By virtue of the doctrine of preemption, United States federal laws such as Title 49 United States Code Chapter 441 – Registration and Recordation of Aircraft (Chapter 441) and Title 11 United States Code - United States Bankruptcy Code will preempt where it conflicts. There are also international laws that preempt both local state law and federal law, such as the Cape Town Convention, the Convention on International Recognition of Rights in Aircraft and others. Understanding these legal frameworks is important when preparing documents for filing with the FAA.
How to perfect an aircraft lien with the FAAThe FAA is mandated by Chapter 441 to establish a recording place and system for documents that affect an interest in aircraft, including aircraft mortgage and security agreements and collateral assignments of aircraft leases. To complete the loan package, it is essential to compile documents that adhere to the requirements of Chapter 441 as well as parts 47 and 49 of the Federal Aviation Regulations, ensuring their successful filing with the FAA during the closing process.
Because the FAA is the primary repository for recording security agreements and leases related to aircraft, filing documents such as bills of sale, lease terminations and security agreements with the FAA is important for perfecting an aircraft lien. Timely filing is vital, as the FAA is experiencing backlogs in its registry.
Unless they qualify for expedited treatment, documents filed with the FAA are primarily worked in order of receipt. A document filed with the FAA is not instantly reviewed, processed and recorded; rather, the particular document is scanned and indexed after filling and then placed in a queue for processing. The documents will not appear in the official record immediately after filing, but only after the documents are reviewed, processed and eventually recorded or accepted by an FAA examiner. Nevertheless, the Federal Aviation Regulations explicitly state that perfection relates to the date and time the document was filed, not when it was recorded. So, even though the filed documents have not been reviewed or recorded, your perfection relates to the date and time the documents were filed with the FAA.
However, an FAA examiner may reject aircraft documentation for several reasons, and the documentation may have to be refiled; for example, if the document is not properly executed, the serial number is off by one letter or number, there are missing pages, etc. If rejected, the filing must be resubmitted, and the lienholder's rights may not be properly secured.  
Recognizing the critical nature of promptly perfecting a security interest, it is imperative to approach this process with thorough preparation and precise execution. The potential repercussions of any misstep can be significant. So, engaging the services of an experienced aviation professional is important to guarantee the correct and proper filing of aircraft documentation with the FAA.
Off-Record MattersSince the FAA only records certain types of conveyances, lenders should be aware of any off-record matters not shown on the FAA records that may affect the aircraft's title. For example, a mechanic can claim an interest on an aircraft for unpaid repair or service work by virtue of a mechanic’s lien. Many states have a statute providing service providers a possessory lien and, in some instances, a non-possessory lien on an aircraft they're working on in return for unpaid services. Here, state laws might overrule the FAA-perfected security interest in certain circumstances.
Another common off-record matter to consider is insurance. Lenders should ensure they are specifically named as a loss payee on the whole policy and have direct coverage.
Additional considerations for lendersAs part of perfecting their security interest in the aircraft, prudent lenders should also ensure the aircraft is properly registered, which means the registration applicant must qualify to register the Aircraft. The FAA requires the aircraft be registered in the name of its actual owner and not a nominee. A registered owner must be a "Citizen of the U.S." or a non-citizen corporation (not a limited liability company or partnership) when the aircraft is "Based and Primarily Used" in the U.S.
The qualifications of a "Citizen of the U.S." under 49 USC §40102(a)(15) include: 
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An Individual
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Partnerships Made up of Individual U.S. Citizens
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Certain Corporations and Associations that meet the criteria outlined at 49 USC §40102(a)(15),
Under 49 USC §40102(a)(15), a corporation or association must be: 
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Organized Under the Laws of the U.S. or a State, the District of Columbia, or a Territory or Possession of the U.S.;
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The President must be an individual Citizen of the U.S.;
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At Least Two-Thirds of (i) the Board of Directors and (ii) the Other Managing Officers are Citizens of the U.S.;
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At Least 75% of the Voting Interest Is Owned or Controlled by Citizens of the U.S.;
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The entity must be under the actual control of Citizens of the U.S;
The requirements for a non-citizen corporation to be considered based and primarily used in the United States are set out in FAR 47.9.
 ConclusionPerfecting an aircraft lien with the FAA is a meticulous process, and its importance cannot be overstated. Lenders must navigate a complex web of legal requirements, filing procedures and potential pitfalls. Seeking the help of aviation professionals is recommended to ensure a smooth and correct filing process, ultimately safeguarding lenders' interests in the dynamic world of aviation finance.
Many thanks to Scott McCreary, Aviation Group Practice Group Leader at McAfee & Taft, for his contribution to this article.
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