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  • Tracey Cheek posted an article
    GAMA and AIA Call for Commitment to Implement Key Reforms see more

    NAFA member, GAMA, shares statement regarding the historic opportunity of the FAA Reauthorization Act of 2018 being signed into law.

    Washington, DC –– The Aerospace Industries Association (AIA) and the General Aviation Manufacturers Association (GAMA) today issued the following joint statement after the Federal Aviation Administration (FAA) Reauthorization Act of 2018 was signed into law by President Trump:

    “This is the first time since 1982 that the U.S. government has enacted a five-year FAA reauthorization. This new law contains key reforms that can help to transform the U.S. aerospace industry and the FAA, and secure America’s position as a global aviation leader into the future. 
     
    “This new law provides direction, training, and tools for the FAA to be able to aggressively implement critical reforms that will enable new aircraft and technologies such as urban air mobility, commercial space, unmanned aerial systems, supersonics, and additive manufacturing. It will also provide our industry the budget stability and certainty we need to deliver on our extensive research and development investments.
     
    “At their core, these reforms will help to drive important progress on safety, efficiency, investment, competitiveness and the effective use of taxpayer and industry resources. We appreciated the Congress’ focus on improving the certification process, and including measures to bolster the future aviation workforce, including by increasing the diversity and inclusion of underrepresented groups, so that workforce limitations are not an impediment as our industry continues to expand. 
     
    “The signing of this legislation into law is an historic opportunity. The FAA’s implementation of these mandated reforms can accelerate change and innovation at the agency. Without them, the pace of new technology will continue to overwhelm the regulatory system. We call on all members of the government and industry to commit to this transformational timeline and work together to implement this legislation.”

    For additional information, please contact Sarah McCann, GAMA Director of Communications, at +1 (315) 796-1560 or smccann@gama.aero, or AIA Director of Communications Dan Stohr, at (703) 358-1078 (office), (703) 517-8173 (mobile), or dan.stohr@aia-aerospace.org.

    This article was originally published by GAMA on October 5, 2018.

     

  • NAFA Administrator posted an article
    Avoiding Pitfalls When Exporting Aircraft from the United States see more

    NAFA members, Jonathan M. Epstein and Libby Bloxom, with Holland & Knight, discuss what you need to know regarding exporting aircraft from the United States. 

     

    Highlights


    • Recent aircraft seizures by U.S. Customs and Border Protection (CBP) and the U.S. Department of Commerce Bureau of Industry and Security (BIS) have highlighted the need to ensure compliance with U.S. export laws.
    • Sellers, buyers, brokers and others involved in the sale or lease of aircraft for operations by foreign parties need to cooperate with each other to ensure exports are done properly and in compliance with U.S. export laws, including making an Electronic Export Information (EEI) filing and complying with any licensing requirements or restricted end-user/end-use limitations under the Export Administration Regulations (EAR).

    There are two common types of aircraft exports: 1) permanent exports – where the aircraft is physically exported (i.e., flown) from the U.S. as part of a sale, lease or transfer of possession and control to a foreign person, or is otherwise intended to be based out of the U.S. for one year or more; and 2) temporary exports – where the aircraft will fly under its own power on a temporary sojourn, such as carrying passengers or cargo from the U.S. to Mexico, where it is intended that the aircraft will return to the U.S. within one year and there is no transfer of control. This Holland & Knight alert focuses on permanent export requirements.1

    There is considerable confusion as to the requirements under customs and export laws for aircraft being sold or leased to a foreign person and exported from the United States (i.e., being permanently exported from the U.S.). Unlike most goods that move in commerce, when an aircraft is sold or leased to a foreign party, it departs the U.S. as its own conveyance. However, many of the same basic export requirements apply, as if the aircraft had been boxed up and sent as freight to the foreign country. This process is confusing for a number of reasons:

    • Parties may confuse requirements such as deregistration with the Federal Aviation Administration (FAA) and issuance of an export certificate of airworthiness with requirements under U.S. customs and export laws, in particular the need to make an Electronic Export Information (EEI) filing.
    • Even aircraft that remain on the FAA registry may be permanently exported for customs and export control purposes. For example, aircraft owned by U.S. lessors (or a U.S. trustee), where the operator intends to base the aircraft outside the U.S., would still be considered a permanent export under U.S. customs and export laws.
    • U.S. export regulations, dictating the responsibility to determine export requirements and make EEI filings, can be confusing and difficult to apply to certain aircraft export transactions.

     

    What Is an EEI Filing and When Is It Required?

    The EEI is an electronic submission of export data filed through the Automated Export System (AES), administered by U.S. Customs and Border Protection (CBP), although the Foreign Trade Regulations (FTR) governing EEI filings are administered by the U.S. Census Bureau.2 The EEI contains details, such as the parties to a transaction and ultimate consignee, the export classification of the item, value and other data that is both for statistical and law enforcement purposes. The EEI is generally filed prior to the permanent physical export of the aircraft from the United States. For example, an EEI would be required where:

    • the aircraft is sold to a foreign buyer and permanently exported from the U.S.
    • an aircraft departs the country with the intent to base it out of the country for one year or more, such as, for example, a lease of an aircraft by a U.S. lessor to a foreign operator

    Conversely, an EEI would not be required where the aircraft is temporarily exported and intended to be based out of the U.S. for less than one year or where there is no physical export from the U.S. (for example, if an aircraft is sold domestically to a foreign entity in the U.S. that intends to base the aircraft in the U.S.).

     

    Who Is Responsible for Making the EEI Filing?

    Generally, the U.S. Principal Party in Interest (USPPI) is responsible for making the EEI filing, but will often appoint a customs broker as the "authorized agent" to make the filing on its behalf (except where the transaction is a routed export transaction as described below).

    The USPPI is the "person or legal entity in the United States that receives the primary benefit, monetary or otherwise, from the export transaction. Generally, that person or entity is the U.S. seller, manufacturer, or order party, or the foreign entity while in the United States when purchasing or obtaining the goods for export."3

    • In an aircraft transaction, the USPPI would typically be the actual seller (the entity that receives the financial benefit from the sale). For example, if a U.S. manufacturer sells an aircraft to a U.S. foreign party, the U.S. manufacturer would be the USPPI.
    • The foreign buyer is typically not the USPPI in aircraft transactions, as the foreign buyer is rarely "physically in the U.S." Even if the foreign buyer's pilots take delivery in the U.S., it is insufficient to make the foreign buyer the USPPI, as the pilots are performing only the ministerial task of ferrying the aircraft out of the U.S. Rather, this would be considered a "routed export transaction."

     

    A "routed export transaction" is an export transaction where the Foreign Principal Party in Interest (FPPI) authorizes a U.S. agent to facilitate the export of an aircraft from the U.S. and make the EEI filing on the FPPI's behalf.

    For example, if a foreign buyer accepts delivery of the aircraft in the U.S. and arranges for contract pilots to fly the aircraft from the U.S. to Mexico, the foreign buyer would be the FPPI and would appoint an authorized agent in the U.S. (e.g., a customs broker) to make the EEI filing on its behalf. In this scenario, the seller would be the USPPI and would be responsible for providing information to the FPPI's authorized agent in order to complete the filing. The USPPI would not itself be responsible for filing the EEI, unless it obtained authorization from the FPPI to make the EEI filing. However, many U.S. manufacturers include the latter authorization in their contracts, as it is prudent for them to oversee such EEI filings, rather than rely on the foreign buyer who may be unfamiliar with U.S. export clearance requirements.

    Applying these rules to some aircraft export transactions is difficult, and even experienced customs brokers/government officials can reach different conclusions as to which party should be the USPPI or FPPI and whether a transaction is a routed export transaction or not. However, the aircraft broker receiving a commission only, an owner trustee or a management company providing ferry services generally would not be considered the USPPI or FPPI, as they are not a principal party receiving the primary benefit of the transaction.

     

    Who Is the "Exporter" and What Are the Restrictions on Exporting?

    The term "exporter," under the Export Administration Regulations (EAR), is defined as "[t]he person in the United States who has the authority of a principal party in interest to determine and control the sending of items out of the United States."4 The exporter is generally the USPPI and is the party generally responsible for determining licensing authority (i.e., determining whether the aircraft export requires a license, falls under a license exception or qualifies for no license required). The principal exception to the USPPI being the exporter is, in a routed export transaction, if the USPPI obtains written confirmation from the FPPI that the FPPI will be responsible for determining licensing authority. In such case, the authorized agent of the FPPI is the exporter under the EAR.5

    The EAR applies to the physical export of civil aircraft from the United States to a foreign country, regardless of whether the aircraft is flying on a temporary basis or for permanent export. However, most civil aircraft do not need a license to export to most countries under the EAR or U.S. economic sanctions. However, exports are generally prohibited to sanctioned countries, such as Cuba, Iran, Syria, Sudan, North Korea and the Crimea region; certain persons on barred entity lists, including the Entity List, Denied Persons List and Specially Designated Nationals (SDN) List; or certain barred end-users/end-uses (such as military end-users/end-uses in Venezuela, Russia and China).

    U.S. parties should properly vet the foreign counterparties (including the beneficial owner of the purchaser as well as the end-user) before transferring title to ensure that the aircraft will not be diverted to an unlawful end-user, end-use or destination in violation of the EAR or U.S. economic sanctions. Even if the buyer is not designated on one of the above lists, U.S. parties should be alert for and cautious of any "red flags" of possible illegal activity, such as funds from various sources not associated with the buyer, a buyer who is evasive about disclosing the end-user or a buyer who refuses to provide information about its beneficial ownership.

     

    What Are Some Tips to Ensure Compliance with Export Requirements?

    The export clearance process is an inexpensive ministerial process, but failure to follow the procedures can result in fines or even aircraft seizures by the U.S. government. Regardless of your role as seller, buyer, broker, trustee or outside counsel, it is important to collaborate with other parties in the transaction on export clearance in the same way parties work to ensure that deregistration and export certificate of airworthiness issues are properly handled. While not comprehensive, below are some tips for complying with the export clearance process when exporting from the U.S.

    • Confirm that the party responsible for the EEI filing is using a customs broker or other professional experienced in aircraft exports (particularly in routed export transactions). The customs broker or counsel can assist in determining whether a transaction is a routed export transaction and who the USPPI should be (in some cases, in consultation with the Census Bureau).
    • Note that the first page of the airway bill, export shipping instructions or other commercial loading documents (e.g., export manifest) must be annotated with an Internal Transaction Number (ITN), which is the EEI filing identification number automatically generated when the EEI is filed.6
    • The purchase agreement should clearly delineate which party is responsible for arranging and paying for export licensing and clearance, consistent with the restrictions in the regulations (i.e., certain responsibilities may not be contractually disclaimed). In addition, it is recommended that the purchase agreement contain export control language, and a "destination control statement" should be included on the commercial invoice prepared for export purposes.7
    • Be cognizant that an aircraft departing the U.S. (whether for permanent or temporary export) must comply with certain filing requirements, such as pre-filing an electronic manifest. For example, private aircraft must not depart the U.S. to travel to a foreign location until CBP confirms receipt of the appropriate manifest and departure information, and grants electronic clearance via electronic mail or telephone.8 In addition, some foreign countries require filing of advance notice of arrival.
    • In some cases, an aircraft will be loaded with spares or other items that may be considered cargo. If this is the case, check with the customs broker, as such items may need to be separately declared and identified in the EEI for export purposes (and for import into the destination country).
    • Parties should retain records of proper export. Note that the EEI is confidential, and the USPPI and authorized agent generally cannot share the EEI with anyone, including the FPPI.

     

    Notes

    1 This Holland & Knight alert provides an overview of customs and export control clearance issues when exporting aircraft from the United States. It should not be construed as legal advice with respect to any particular transaction or export. In particular, the specific facts and circumstances of each transaction/export will dictate the responsibility of each party under U.S. law.

    2 15 C.F.R. Part 30.

    3 15 C.F.R. § 30.1 (defining "U.S. principal party in interest").

    4 15 C.F.R. Part 772 (defining "exporter" and also defining a "principal party" as "those persons in a transaction that receive the primary benefit, monetary or otherwise, of the transaction. Generally the principals in a transaction are the seller and the buyer. In most cases the forwarding or other agent is not a principal party in interest."). The term "exporter" or "exporter of record" is not a term used in the FTR governing EEI filings.

    5 See 15 C.F.R. § 758.3 (Responsibilities of Parties to the Transaction).

    6 See 15 C.F.R. § 30.7.

    7 See 15 C.F.R. § 758.6.

    8 See 19 C.F.R. § 122.22(c).

     

    This article was originally published by Holland & Knight on February 23, 2021.

  • NAFA Administrator posted an article
    AINsight: How Dry Leases Can Prevent Illegal Charter see more

    NAFA member, David G. Mayer, Partner at Shackelford, Bowen, McKinley & Norton, LLP, discusses how dry leases can prevent illegal charter.

    Is it possible that a subtle shift is occurring away from the pervasive and persistent menace of illegal charter operations? Anecdotally, and perhaps for me just hopefully, I am seeing more aircraft owners, operators, lessees, and lessors asking whether they need some type of leasing or other structure to avoid FAA scrutiny or personal liability.

    Leasing enables a lessee, which may be an individual or entity (person), to lawfully “operate” and thereby exercise “operational control” over an aircraft under the FARs. Only one person has operational control. Leasing offers a broad array of benefits and structures to direct cash flow from lessees to lessors and vendors, manage risk, minimize certain taxes, share aircraft use and cost among unrelated and affiliated parties, and facilitate commercial operations under FAR Part 135.

    But leasing is not an incidental subject, as explained in the General Aviation Dry Leasing Guide developed by NBAA and several other aviation alphabet groups. This 17-page publication informs aircraft buyers, owners, lessors, lessees, lenders, brokers, lawyers, and other advisors about the flexibility, utility, regulatory aspects, and complexity of leasing.

    Key FAA Leases: Dry and Wet

    It is essential first to understand that a “lease” under the Uniform Commercial Code in part means a transfer by a “lessor” to a “lessee” of the right to possession and use of an aircraft for a term in return for consideration—usually hourly, fixed, and/or variable rent payments.

    In contrast, a true lease might exist when the lessor retains residual value risk—the remaining value of the aircraft at the end of the lease term. Sellers do not take this risk. Finally, a charter is not a lease; it is a service, with no change of aircraft possession.

    Under FAR 91.23, “a lease means any agreement by a person to furnish an aircraft to another person for “compensation or hire, with or without flight crewmembers, that is not a contract of conditional sale.” In this context, the FAA identifies two extremely important categories of leases in Order 8900.1: dry leases and wet leases.

    Dry lease refers to an aircraft transaction in which the lessor provides the aircraft, the lessee independently supplies the crewmembers, and the lessee retains operational control of the flight. FAR 1.1 defines a core regulatory concept of operational control with respect to a flight as “the exercise of authority over initiating, conducting, or terminating a flight.”

    Illegal or unsafe operations may occur when leases or other contracts do not specify who is responsible for operational control of the aircraft and in other circumstances. As such, the FAA focuses on operational control in assessing whether a flight operation is an illegal charter or valid Part 91 operation.

    Operational control under Part 91 does not mean the traveler must fly the aircraft personally. An aircraft owner or lessee typically delegates that responsibility to pilots under Part 91 or charter operator under Part 135. I sometimes refer to the one person that exercises operational control as having the liability target on the person’s back.

    For example, in one of the most common uses of dry leases, an owner enters into a dry lease between a limited liability company (LLC), as the single-purpose aircraft owner entity, to put operational control of flight operations into the hands of one person as the lessee in compliance with Part 91.

    A major business enterprise for profit may be an appropriate dry lessee if the aircraft serves the business of the enterprise whose operations generate substantially more revenue than the operating costs of the aircraft. The LLC owner/member may also agree to an “exclusive dry lease,” with one lessee/operator or “non-exclusive leases” with multiple aircraft lessees/operators under their separate non-exclusive leases.

    The finance world routinely uses exclusive dry leases of various types to enable a lessor to buy an aircraft and lease it to a lessee without crew under a long-term lease. Here, the lessee similarly supplies the crew and assumes all obligations under the lease for the care, custody, and control of the aircraft during the term, including for its maintenance, crewing, operations, cost payments, insurance, and taxes.

    Despite the availability of leasing, new and current aircraft owners still frequently violate the FARs when their LLCs operate the aircraft but have no business other than to own and operate their aircraft, converting the LLCs into illegal “flight department companies.” Such a single-purpose LLC cannot lawfully conduct these operations, share the aircraft for any compensation (anything of value), or offer the aircraft for hire to others unless the LLC obtains an air carrier certificate under Part 119 and operates the aircraft under Part 135. It is quite feasible to use non-exclusive or exclusive dry leases to rectify or avoid these violations.

    In contrast to a dry lease, the FAA defines a wet lease in FAR 110.2 as an aircraft lease whereby the lessor provides both an entire aircraft and at least one crewmember to a lessee. The lessor retains operational control of the flight, unlike a dry lease where the dry lessee supplies its own crew, directs many aspects of flight operations, and retains operational control.

    Another significant distinction exists between Part 91 private operations and Part 135 commercial operations conducted by the air carrier that influences lease structuring. The air carrier (charterer) has the liability target on its back instead of the person that would otherwise exercise operational control under Part 91. This feature appeals to risk-averse Part 91 lessees or owners that want to mitigate the risk of liability for accidents involving their aircraft under their operational control of the aircraft.

    When the Rubber Hits the Runway

    When the conduct of flights blurs the line in determining whether one lessee/passenger has operational control or the lessor/aircraft provider has operational control under Part 91, illegal charter operations may be occurring. Lessees normally must understand and accept operational control and related obligations.

    Although the FAA has no specific criteria to determine when Part 91 dry leases morph into illegal wet leases, lessees should be wary of lessors that offer leases to multiple unrelated parties, induce the parties to hire the lessor’s pilots, and usurp the lessee’s independence in exercising operational control.

    Importantly, the lease parties of large civil aircraft (over 12,500 pounds mtow) must comply with FAR 91.23, the Truth-in-Leasing rules. These rules, which protect and inform lessees, require the filing with the FAA of a copy of the lease within 24 hours of signing and notice to the local FAA Flight Standards office at least 48 hours before the first flight under the lease.

    Conclusion

    There is no excuse for operating an aircraft as an illegal charter, especially when leasing aircraft provides a reasonable way to transfer rights to lessees to possess and use an aircraft under the lessee’s operational control. With the guidance of knowledgeable aviation counsel, individuals and entities can operate safely, lawfully, and knowledgeably under the FARs using leases and other related documentation that will survive FAA scrutiny.

    This article was originally published on AINonline on January 15, 2021.

     

  • NAFA Administrator posted an article
    Insights From An FAA Illegal Charter Investigation see more

    NAFA member, Greg Reigel, Partner at Shackelford, Bowen, McKinley & Norton, shares insights from an FAA illegal charter investigation. 

    Recent FAA press releases have publicized the enforcement actions the agency is taking against those involved in illegal charter.  However, what is not publicized is how the FAA is investigating these cases.  A recent case in the U.S. District Court for the Southern District of Indiana provides an interesting glimpse into one such investigation.

    The Case

    In Elwell v. Bade et al., the FAA received complaints regarding alleged illegal charter activity.  In response, the FAA opened what has turned out to be a six year investigation.

    During its investigation, the FAA issued three sets of subpoenas over a three year period.  The last set asked for production of all documents related to agreements associated with use, ownership, and/or leasehold interest in certain aircraft under investigation for a specified period of time.  The recipients of the subpoenas (the “Respondents”) objected and refused to produce any documents.

    The FAA filed a petition with the U.S. District Court requesting enforcement of the subpoenas.  The Respondents objected to the subpoena by filing a motion to quash the subpoenas.  The Court refused to quash the FAA’s administrative subpoenas and ordered their enforcement.

    The Court concluded that “(a) the matter under investigation is within the authority of the issuing agency, (b) the information sought is reasonably relevant to that inquiry, and (c) the requests are not too indefinite.” However, the Court’s analysis and rationale also provide insight into some of the things the FAA can do, and when it can do them, in an illegal charter investigation.

    Here are some of the key takeaways:

    The FAA Has Authority To Issue Subpoenas In Connection With An Investigation

    Under 49 U.S.C. § 46101(a), the FAA may investigate violations as long as the agency has “reasonable grounds.”  Neither an enforcement action nor a lawsuit is necessary.  When a court reviews an agency’s subpoena requests, the court must make sure the agency does not exceed its authority.  And the threshold for the relevance of the documents/information requested by the administrative subpoenas is relatively low. The court must also confirm that the requests are not for an illegitimate purpose.

    In illegal charter investigations such as the Bade case, the FAA typically asks for

    • aircraft flight logs
    • flight summaries
    • aircraft lease agreements
    • operating agreements
    • interchange agreements
    • pilot services agreements
    • pilot payrolls
    • operating invoices
    • receipts etc.

    And, as in Bade, a court will likely hold that such requests are proper and do not exceed the FAA’s authority.

    Stale Complaint Rules Do Not Bar Subpoenas During An Investigation

    As you may know, stale complaint rules act to bar the FAA from acting in certain situations after a period of time.  For example, in certificate actions heard before a National Transportation Safety Board Administrative Law Judge, 49 C.F.R. § 821.33 may prevent the FAA from acting if it does not initiate the case within six months of advising the respondent of the reasons for the proposed action.  Similarly, in a civil penalty case, a case may be dismissed under 14 C.F.R Part 13.208(d) if the FAA does not initiate action within two years.

    However, these stale complaint rules do not apply to ongoing investigations where no action has been initiated.  According to the Bade court, the “FAA may conduct an investigation to assure itself that its regulations are being followed, regardless if it ultimately determines civil enforcement or formal charges are not warranted.”

    Similarly, the FAA may investigate a target who is “engaged in a continuing violation of [FAA’s] safety regulations.”  In Bade, the FAA argued it was not investigating stale claims.  Rather, it believed the respondents were engaged in continuing violations where “the statute of limitations restarts every day.”  And the Court agreed.

    (Interestingly, the Court did not address whether this analysis, and its decision, would have changed if the aircraft involved had been sold and/or the flight operations had ceased.  As a result, it is unclear whether the investigation would have been moot if applicable stale complaint rules prohibited enforcement action.)

    The FAA Does Not Have To Tell The Target Of An Investigation About Subpoenas

    Under 49 U.S.C. § 46104(c), an agency must only give notice to “the opposing party or the attorney of record of that party.”  However, an investigation has no “record.” As a result, since the target of the investigation is not the one being deposed nor is counsel to those targets being deposed, the target does not have a statutory right to receive notice of third-party depositions.

    The Bade court also noted that “’failing to receive notice of one or more depositions does not prove that the FAA’s investigation is a sham,’ and has ‘nothing to do with the enforceability of the Subpoenas or the motive of the FAA in conducting this investigation.’”

    So, potential respondents do not get to participate at third-party depositions or receive copies of documents produced in response to subpoenas. This certainly makes defending against an illegal charter investigation a more difficult task.

    The FAA’s Order 2150.3C Is Only “Guidance”

    In Bade the Respondents argued that the FAA had not followed its own policies when conducting the investigation.  Specifically, they argued the FAA failed to follow FAA Order 2150.3 – FAA’s Compliance and Enforcement Program. However, the Court rejected the argument.  It observed that Order 2150.3 is not regulatory.

    Rather, Order 2150.3 merely provides guidelines to FAA personnel for performing their duties. Thus, the Court concluded that the FAA’s failure to strictly adhere to Order 2150.3’s “guidance” did not negate its authority to investigate. Nor did it mean the FAA was pursuing the investigation for an improper purpose.

    Conclusion

    Illegal charter is a high priority for the FAA at the moment, and will be for the foreseeable future.  As a result, the agency will continue to investigate complaints of illegal charter.  It is important to understand how the FAA conducts these investigations and the extent of its authority.

    And it is imperative for aircraft owner or operator who is the target of an illegal charter investigation to know its rights. If you believe you are the target of an illegal charter investigation, contact us now so we can help you navigate the investigation and protect your rights.

    This article was originally published by Shackelford, Bowen, McKinley & Norton, LLP on June 23, 2020.  

  • NAFA Administrator posted an article
    Aircraft Registration Numbers: Personalized “Plates” for Aircraft see more

    NAFA member, Amanda Applegate, Partner at Aerlex Law Group, discusses aircraft registration numbers.

    First-time aircraft buyers looking at a potential acquisition may not realize that the registration number painted on the fuselage or vertical stabilizer of the aircraft can be changed and personalized by the new owner. “Tail numbers” – the name often used when referring to aircraft registration numbers – can be chosen by an owner in much the same way as a “vanity” license plate for an automobile. When selecting a registration number for a U. S. registered aircraft, the following rules apply:

    An N-Number can be in any of these formats:

    • One to five numbers (N12345)
    • One to four numbers followed by one letter (N1234Z)
    • One to three numbers followed by two letters (N123AZ)

    N-Numbers do not have:

    • A zero as the first number
    • The letters “I” or “O”

    In order to check the availability of a registration number, the following website can be used: 

    http://registry.faa.gov/aircraftinquiry/nnav_inquiry.aspx

    However, it is worth noting that reserving a registration number can be done online, in person at the Federal Aviation Administration (“FAA”) registry filing window or through the mail. Therefore, sometimes a registration number may appear available online when it is not actually available.

    If the registration number is available, it can be reserved for a fee of $10.00. It is important to reserve the registration number under the name of the new owner or a relinquishment and reservation in the new name will have to take place later.

    Once the registration number has been reserved, the FAA will send a written notice of confirmation of the reservation. If this confirmation has been received but the assignment has not yet been approved by the FAA, owners oftentimes will paint the new number on the aircraft but cover it with a decal reflecting the present registration number until such time as the change has been approved by the FAA.

    Once the registration number is reserved, it must be assigned to the aircraft. If the change is being done at the time the aircraft is being purchased, it is best to submit the request for the registration number change with the documents filed for closing with the FAA civil aircraft registry. The letter requesting the registration number change should include the name of the aircraft manufacturer, model designation, serial number, and the current registration number.

    When the FAA approves the registration number change, the agency will mail an AC Form 8050-64 to the owner. This is the Assignment of Special Registration Number and authorizes the placement of the new registration number on the aircraft. Once the owner places the new registration number on the aircraft, the owner must do four things:

    1. Within five days after the number is placed on the aircraft, the owner must complete and return the 8050-64 form showing the date the registration number was placed on the aircraft.
    2. Within 10 days, the owner must take a copy of the 8050-64 form and the existing airworthiness certificate to a FAA Flight Standards District office (FSDO) to obtain a revised airworthiness certificate.
    3. The owner must carry a copy of the AC Form 8050-64 with the current Certificate of Aircraft Registration, AC Form 8050-3. These documents provide temporary authority to operate the aircraft under the new N number until the replacement Certificate of Aircraft Registration is received.
    4. The owner must notify the aircraft insurance provider of the registration change.

    A seller who wishes to keep the registration number currently assigned to an aircraft that is being sold should make retention of that N number one of the terms of sale. If the seller is going to retain the current registration number, then the parties need to determine, as part of their negotiations, which party will pay for the cost associated with the change. Additionally, some sellers may wish to establish a deadline on when the registration number will be assigned back to them. However, it is important to note that neither party controls how fast the FAA issues the 8050-64 form and, therefore, language should not obligate the parties to a timeline they cannot control. If a registration number change is being done in conjunction with a sale, it is best to file the request for the registration number change at the same time the closing transaction documents are filed with the FAA registry.

    Creating a unique and special registration number for your aircraft can add a bit of fun to the ownership experience. However, the cost of the personalization must be properly allocated to the responsible party. Additionally, the timing of the change should be considered in order to avoid causing unnecessary complications in the closing of an aircraft acquisition.

    This article was originally published in BusinessAir Magazine, November 2020, Volume 30, No. 11.

     

  • NAFA Administrator posted an article
    Beware of phishing schemes relating to aviation escrow matters see more

    NAFA member, Scott McCreary, Vice President at McAfee & Taft, warns of aviation escrow phishing schemes.

    The McAfee & Taft Aviation Group has recently seen an increase in the number of phishing schemes relating to aviation escrow matters. Phishing is the fraudulent attempt to obtain sensitive information or data, such as usernames, passwords and credit card details, by disguising oneself as a trustworthy entity in an electronic communication. Typically carried out by email spoofing, instant messaging, and text messaging, phishing often directs users to enter personal information at a fake website that matches the look and feel of the legitimate site.

    You may have recently received a phishing email purportedly from McAfee & Taft regarding our banking instructions. We wanted to advise you that McAfee & Taft has not and would never send out an email blast stating that its banking instructions have changed. All communication from McAfee & Taft will always come directly from an attorney or legal assistant with our group. Also, in responding to any emails, please be sure to check email address domains, as we have seen an uptick in email spoofs using similar email domain names (look for extra letters in domain names).

    At McAfee & Taft, we take our role very seriously in providing best practices for any transaction, including ones involving funds. For any transaction involving funds, we suggest the following to help keep fraudsters out of the mix:

    1. Always have a written escrow agreement or escrow addendum to your purchase agreement that contains the contact names of all relevant parties, with address, phone numbers and email addresses, so that you can always confirm that the parties on any email traffic are legitimate.
    2. Always include wire transfer instructions in the escrow agreement or escrow addendum. Providing wire instructions for the seller on or immediately prior to the day of closing or changing wire instructions for the seller could cause a delay in closing the transaction due to additional verification required.
    3. Verify wire instructions by phone for any wire transfers, whether going into escrow or being disbursed out of escrow. Locate a telephone number for the person receiving the funds from an independent source, such as an email from that person from a totally unrelated deal, or from LinkedIn, or from a website. Do not use the phone number from the email containing the wire instructions.

    We greatly appreciate the folks in the industry with whom we work, and we strive to do everything possible to protect the deals that we all work on to continue to make the world go round!

    This article was originally published in McAfee & Taft Aviation Alert | October 19, 2020.


     

  • NAFA Administrator posted an article
    Does the FAA Aircraft Registry Recognize a “mailbox rule”? see more

    NAFA member, Scott McCreary, Vice President at McAfee & Taft, discusses the "mailbox rule" and the FAA Aircraft Registry.

    Many people are aware of the old common law concept known as the "mailbox rule", whereby placing a document in the mail is considered under certain circumstances as tantamount to delivering or filing the document under applicable law. Unfortunately, some practitioners try to apply the mailbox rule generally to documents filed with the Federal Aviation Administration Aircraft Registry (“FAA”). Although it is true documents can be mailed to the FAA, 14 CFR § 49.19 confirms a conveyance (i.e. document that is recordable with the FAA) is considered filed for recordation with the FAA upon the date and at the time it is received by the FAA, not when placed in the mail. Likewise although a document may not be recorded by the FAA for days or even weeks after it has been filed/received, pursuant to 49 USC 44108 perfection relates back to the date and time of receipt by the FAA.  Thus the FAA filing stamp placed on the document denoting the date and time the document is received is controlling for purposes of perfection under the 49 USC Section 40101, et seq., as amended (“Act”).

    One limited exception to the foregoing is highlighted in a 1966 opinion (“1966 Opinion”) from FAA Associate General Counsel, Regulations and Codification Division, dealing with the filing of a bill of sale and AC Form 8050-1 Aircraft Registration Application (“Application”). Under 14 CFR § 47.31(c), an applicant for registration of an aircraft last previously registered in the United States must carry the second copy of the Application from the new owner in the aircraft as temporary authority to operate the aircraft within the United States. This temporary authority is valid for a period of up to 90 days after the date of the Application pending the FAA processing the documents and issuing a new certificate of aircraft registration in the name of the new owner. Before operating under this temporary authority, the applicant must comply with 14 CFR § 47.31(a) by “submitting” to the FAA an Application, evidence of ownership, and the applicable filing fee. In the 1966 Opinion, the FAA determined that for the limited purpose of operating an aircraft on a copy of the Application, for purposes of 14 CFR § 47.31(a) submission is satisfied by depositing the documents in the mail (the “FAA Mailbox Rule”).

    It should be noted the FAA did not determine the FAA Mailbox Rule applies to all documents/conveyances filed for recordation with the FAA. Simply mailing documents to the FAA by itself does not perfect rights created by the conveyances that are filed and recorded with the FAA under 49 USC 44108. The documents/conveyances must be received and recorded by the FAA, and the perfection relates back to the time of receipt by the FAA, not mailing. As such parties mailing documents to the FAA run obvious risk that other documents/conveyances may be received by, and considered filed with, the FAA before the mailed documents. Also at the time the 1966 Opinion was issued, the primary method of filing documents with the FAA was by mail. There has always been a presumption the use of an express courier services would be treated as placing the documents in the “mail”, but until recently the FAA has not confirmed the same. 

    Pursuant to COVID 19 the FAA modified its normal procedures for accepting documents. The FAA now accepts documents properly submitted by email. Furthermore, prior to COVID 19 parties could submit documents directly through the FAA Public Documents Room and obtain immediate file stamp copies of the documents. The FAA modified this procedure and documents are no longer filed directly, but placed in a filing bin outside the FAA Public Documents Room and picked up and processed throughout the day. In both instances the FAA has confirmed the documents are not officially filed/received until file stamped.

    Expanding on the 1966 Opinion, the Office of the Aeronautical Center Counsel, Central Regional Counsel of the FAA issued a new legal interpretation in June 2020 to Allison McGrew of McAfee & Taft. The new opinion confirms: (i) the completed copy of the Application becomes effective as temporary authority to operate an aircraft within the United States upon the submission or delivery of the Application, evidence of ownership and applicable filing fee to the FAA Registry; and (ii) consistent with the 1966 Opinion, provided the requirements of 14 CFR §47.31(a) are met, the copy of the Application becomes effective at the time the Application is sent via Priority Courier, sent via email, or delivered to the FAA via the FAA’s modified paper filing procedures. The new opinion is limited in scope to temporary authority to operate an unregistered aircraft under 14 CFR §47.31.

    This article was originally published by McAfee & Taft on August 10, 2020.

  • NAFA Administrator posted an article
    Cross Border Transactions During a Pandemic see more

    NAFA member, Amanda Applegate, Partner at Aerlex Law Group, discusses what to consider during cross border aircraft transactions during a global pandemic.  

    During the global pandemic, many US based aircraft buyers are only considering US registered aircraft due to the logistical challenges caused by COVID-19. However, a willing buyer with an expert acquisition team may be able to find a better pedigreed foreign-registered aircraft at a lower price in today’s market. Cross border transactions in 2020 are unpredictable, challenging, time consuming and require a team who can handle unexpected issues and react to various situations which may arise. Here are some of the important elements to consider in these complicated 2020 cross border transactions.

    1. The aircraft purchase agreement (the “Agreement”) should be a detailed road map of the transaction. It should set forth the chronology of the entire purchase process, and identify who will pay for each step. The timelines in the Agreement must allow for delays which are outside of the control of the parties due to COVID-19. Also, the parties should determine if extensive delays would allow termination of the Agreement, and if so, include in the Agreement. In addition to all of the key concepts that should be in every Agreement, the Agreement for a cross border transaction in 2020 should also clearly specify: (i) which party pays for the correction of airworthy items necessary to allow the aircraft to be registered in the US; (ii) which party pays the cost of import into the US; (iii) which party has the responsibility for the export, import and customs documents; (iv) when the full purchase price has to be in escrow; and (v) when the deregistration process starts and when all of the documents can be released for filing.

    2. The Agreement should allow for a visual inspection. With the COVID-19 travel restrictions changing frequently, it is important that the team who conducts the visual inspection understands local restrictions. During the visual inspection, it is important for the buyer to have a designated airworthiness representative (“DAR”) present to determine if the aircraft will be considered airworthy in the United States. If the aircraft is not deemed airworthy, the DAR can assess what work will need to be done to meet the standards required for issuance of an US airworthiness certificate, and a repair facility can estimate the cost of these items. Understanding these expenses before incurring the inspection fees and before the deposit becomes nonrefundable is very important. It can be very useful to have the pre-purchase inspection take place in the United States so that the buyer can easily view the aircraft prior to purchase and eliminate some of the complexities with traveling during the pandemic. If this is the case, it is important to make sure the seller correctly imports the aircraft into the United States prior to the start of the inspection.

    3. The Buyer needs to build an expert transaction team that includes an onsite technical representative at the inspection facility, the DAR mentioned above, a licensed and bonded United States Customs Broker, and aviation counsel that can, among other responsibilities, coordinate and gather relevant information from local tax counsel, and local title counsel to insure that there are no tax issues with closing and that good title is being conveyed to the buyer free and clear of any local liens or encumbrances that may have attached to the aircraft in the country of registration.

    4. Following a satisfactory visual inspection and pre-purchase inspection, buyer will move towards closing the purchase of the aircraft. In order to start this process, seller deregisters the aircraft from the current country of registration. Depending on how the Agreement is drafted, the seller may also be required to provide an export certificate of airworthiness in favor of the United States.

    5. The Agreement should require that, immediately upon receipt of the notice of deregistration and without any further requirements, the escrow agent will simultaneously wire the proceeds of the sale to the seller and file the bill of sale and registration application with the FAA.

    6. The FAA treats aircraft entering the United States from a foreign registry as a priority and a Temporary Certificate of Aircraft Registration (“Fly Wire”) is typically issued within one to two days following confirmation of deregistration and filing of the appropriate registration documents with the FAA. If the aircraft has been deregistered outside of the United States, the aircraft cannot be ferried to the United States until issuance of the Fly Wire.

    7. The Temporary Certificate of Aircraft Registration should be sent to the DAR who is ready to issue the Certificate of Airworthiness (“C of A”). Prior to issuing the C of A, the DAR will need confirmation that the aircraft has the new United States registration number on it and the transponders have been re-strapped. 

    The key items to remember in purchasing a foreign registered aircraft are: perfecting the Agreement; hiring a DAR, a licensed and bonded United States Customs Broker and an expert transaction team; understanding the costs of obtaining the C of A (and who pays those costs); and sequencing the buying process in a way to properly deregister, register, export and import the aircraft while, at the same time, avoiding unnecessary taxes. To be sure the process is more complicated than buying a US registered aircraft, but if the transaction is managed properly, the benefits to the savvy buyer can make the purchase of a foreign-registered aircraft very rewarding.

    This article was originally published by Aerlex Law Group on September 23, 2020 in Articles, BusinessAir Magazine, The Latest.

  • NAFA Administrator posted an article
    FAA Prohibits Use of Registered Agent’s Address for US Registered Owner of Aircraft see more

    NAFA member, Scott McCreary, Vice President at McAfee & Taft, shares information from the FAA.

    Aircraft registered with the FAA Aircraft Registry must be registered in the name of the actual owner of the aircraft (which is not always the operator), and the owner/applicant for registration must provide its physical address/location on the AC Form 8050-1, Aircraft Registration Application ("Application"). In a recent interpretation, the Federal Aviation Administration Aeronautical Center Central Region Counsel ("ACCRC") has confirmed that the address of the "registered agent" of the owner/applicant is not the address of the actual owner/applicant for purposes of registering the aircraft with the FAA Aircraft Registry. The ACCRC has determined that a registered agent’s address is not the mailing address of the owner/applicant, and the registered agent’s address is not the physical address of the owner/applicant for registration.

    The ACCRC further concluded that if the owner/applicant's correct physical address is not provided the Application is not completed in accordance with 14 C.F.R. §47.31(b)(1). In addition, 14 C.F.R. §47.45 requires the registered owner’s physical address be provided to the FAA following any change of address where a new mailing address is not also the physical address of the registered owner.

    Parties should take care to provide the correct physical address or location of the owner/applicant when registering aircraft with the FAA Aircraft Registry. Failure to provide the correct physical address or location may cause the Application to be rejected or the aircraft registration to otherwise not comply with Federal Aviation Regulations.

    This article was originally published by McAfee & Taft on April 10, 2019.

  • NAFA Administrator posted an article
    Lease Agreements! But Wait, There's More! see more

    NAFA member, Air Law Office, P.A., shares two more steps you should consider regarding your aircraft lease agreement.

    You’ve set up your operational structure for your “large civil aircraft” and you have your Part 91 lease in place, what now?  Whether you have purchased a new-to-you aircraft, or you are changing up your operational structure, you’ve found a new lessee to use your aircraft on a Part 91 basis, there are 2 more steps that you have to take.  Many owners and lessees think that the work is finished once the lease agreement is signed, but they are wrong.  The FAA requires that 2 separate copies of the lease agreement must be sent to 2 separate offices of the FAA before the aircraft flies under the new lease agreement.

    First, under FAR §91.23 within 24 hours of execution, a signed copy of the lease agreement shall be mailed to the FAA Aircraft Registration Branch (AFS-750), Attn: Technical Section, P.O. Box 25724, Oklahoma City, OK 73125.  Note: filing the lease agreement with Registry to satisfy this truth-in-leasing requirement does not constitute filing under 14 CFR part 47 or 49 to register the aircraft, or to record for public notice.

    Second, again under FAR §91.23, the lessee must notify the FSDO closest to the aircraft’s departure airport at least 48 hours prior to the first flight under the lease agreement.  This notice can be in-person, via telephone, via fax or via email, depending on the requirements of that FSDO.  The notice must include the identity of the departure airport and the proposed time of the departure of said first flight.

    The Bottom Line:  Be sure to send a copy of the executed lease to Oklahoma City, send a copy to the appropriate FSDO and be sure to carry a copy on-board the aircraft during all applicable operations!  Check in with your legal team ASAP to be sure you are in compliance!  Remember, this article is intended to inform you about issues that you should discuss with your financial and/or legal team and is not intended as legal advice or opinion, you should not act on any information contained in this (or any other) article without directly consulting legal counsel.

    This article was originally published by Air Law Office, P.A. on August 14, 2020.

  • NAFA Administrator posted an article
    The FAA Registry as a Clearinghouse for Non-US cross border transactions see more

    NAFA member, Tobias Kleitman, President and Founder at TVPX, discusses using the FAA Registry as a clearinghouse.

    How does a UK registered aircraft owner sell its aircraft to someone in China? Or someone in Russia sell an aircraft to someone in South Africa? 

    It’s not as simple as signing a purchase agreement and transferring title after inspections and acceptance. These transactions are complicated by the requirement that the importing registry needs to have assurances that the aircraft is safe to fly and meets their airworthiness standards from the exporting registry. This is a challenge when the two registries don’t have a bilateral agreement in place.

    Per the FAA website “Bilateral agreements facilitate the reciprocal airworthiness certification of civil aeronautical products imported/exported between two signatory countries” https://www.faa.gov/aircraft/air_cert/international/bilateral_agreements/overview/

    Without a bilateral agreement, the importing registry cannot get the assurances they need that the aircraft is in airworthy condition.

    In the example above, The UK Civil Aviation Authority (CAA) cannot issue an Export Certificate of Airworthiness in favor of the Chinese registry. Given the number of aircraft registries that exist, there are countless examples of where this problem can arise. However, buyers and sellers can often solve this dilemma by taking the interim step of registering the aircraft on the FAA registry, which has bilateral agreements with 48 different countries. The aircraft can be brought up to US standards, if necessary, and deemed airworthy, prior to transferring it to a new registry, when the new registry has a bilateral agreement with the US. The buyer can then proceed to register the aircraft on that registry after first deregistering from the FAA Registry.

    In the UK to China example, the seller would transfer the aircraft from the UK registry to the US FAA registry for a short period of time. The UK Civil Aviation Authority would issue an export certificate of airworthiness in favor of the US. 

    Since it is not likely that the UK owner qualifies for US citizenship per the FAA regulations, the UK owner/seller would use an FAA non-citizen trust to hold title to the aircraft and register it on the N registry. Once the aircraft is N-registered, an FAA Designated Airworthiness Representative (“DAR”) would inspect the aircraft log books, maintenance records, safety equipment, etc., and if the aircraft meets the FAA standards for airworthiness, the DAR would Issue a Standard Airworthiness Certificate. At the same time, the DAR would review the bilateral agreements between the US and China to make sure the aircraft meets the Chinese airworthiness standards, and then issue an Export Certificate of Airworthiness in favor of China. The UK owner/seller would then own an aircraft that can be sold to the Chinese buyer, and CAAC (the Chinese (B) Registry) could register the aircraft with the confidence that the aircraft is airworthy. At closing, the owner trustee for the UK beneficiary would transfer title to the Chinese buyer. 

    As an alternative, it is also possible to structure the transaction so that the Chinese buyer, rather than the UK owner/seller, utilizes the short-term trust and is responsible for hiring the DAR and having the Certificates of Airworthiness issued. The buyer may want assurances prior to closing that the aircraft will meet the FAA’s requirements. This assurance can be gained through a thorough pre-buy inspection.

    There are many other variables in these types of transactions that buyers and sellers and their advisors need to address. VAT taxes and export trade compliance from the country of export, US import and subsequent export trade compliance, and potential state sales and use tax exposure need to be carefully considered. In the current environment, COVID-19 and travel restrictions can also impact the ferrying of the aircraft between countries. 

    Using the FAA registry as a clearinghouse can be an effective bridge to facilitate aircraft transactions between two non-US aircraft owners and their respective registries.   

    The TVPX group of companies provide Owner Trust Services through TVPX Aircraft Solutions, Inc. Customs Brokerage, Freight Forwarding, and DAR support services through TVPX, Inc., and Aviation Insurance Services through TVPX Aviation Insurance, Inc. to the business and commercial fixed wing and rotor wing aviation industries.

    This article was originally published by TVPX on October 21, 2020.

  • NAFA Administrator posted an article
    GAO Report: FAA Needs to Better Prevent, Detect, and Respond to Fraud and Abuse Risks in Aircraft Re see more

    NAFA member, Scott McCreary, Vice President at McAfee & Taft, shares the GAO Report.

    Today the U.S Government Accountability Office issued its long awaited report regarding the audit of the FAA Aircraft Registry. The report, titled "Aviation: FAA Needs to Better Prevent, Detect, and Respond to Fraud and Abuse Risks in Aircraft Registration" and can be found at www.gao.gov/products/GAO-20-164. The audit was extensive and ultimately provides the following recommendations:

    1. The Administrator of FAA should conduct and document a risk assessment that considers inherent and residual fraud and abuse risks that may enable criminal, national security, or safety risks. (Recommendation 1)
    2. The Administrator of FAA should determine impact, likelihood, and risk tolerance as part of a risk assessment. (Recommendation 2)
    3. The Administrator of FAA should develop a strategy that outlines specific actions to address analyzed risks, including periodic assessments to evaluate continuing effectiveness of the risk response. (Recommendation 3)
    4. The Administrator of FAA should collect and record information on individual registrants, initially including name, address, date of birth, and driver's license or pilot's license, or both, with subsequent PII elements informed by the risk assessment, once completed. (Recommendation 4)
    5. The Administrator of FAA should collect and record information on legal entities not traded publicly—on each individual and entity that owns more than 25 percent of the aircraft; for individuals: name, date of birth, physical address, and driver's license or pilot's license, or both; and for entities: name, physical address, state of residence, and taxpayer identification number. (Recommendation 5)
    6. The Administrator of FAA should verify aircraft registration applicants' and dealers' eligibility and information. (Recommendation 6)
    7. The Administrator of FAA should increase aircraft registration and dealer fees to ensure the fees are sufficient to cover the costs of FAA efforts to collect and verify applicant information while keeping pace with inflation. (Recommendation 7)
    8. The Administrator of FAA should ensure, as part of aircraft registry IT modernization, that information currently collected in ancillary files or in PDF format on (1) owners and related individuals and entities with potentially significant responsibilities for aircraft ownership (e.g., beneficial owners, trustors, trustees, beneficiaries, stockholders, directors, and managers) and (2) declarations of international operations is recorded in an electronic format that facilitates data analytics by FAA and its stakeholders. (Recommendation 8)
    9. The Administrator of FAA should link information on owners and related individuals and entities with significant responsibilities for aircraft ownership through a common identifier. (Recommendation 9)
    10. The Administrator of FAA should, as part of IT modernization, develop an approach to check OFAC sanctions data on owners and related individuals and entities with potentially significant responsibilities for aircraft ownership for coordination with OFAC and to flag sanctioned individuals and entities across aircraft registration and dealer systems. (Recommendation 10)
    11. The Administrator of FAA should use data collected as part of IT modernization as well as current data sources to identify and analyze patterns of activity indicative of fraud or abuse, based on information from declarations of international operations, postal addresses, sanctions listings, and other sources, and information on dealers, noncitizen corporations, and individuals and entities with significant responsibilities for aircraft ownership. (Recommendation 11)
    12. The Administrator of FAA should develop and implement risk-based mitigation actions to address potential fraud and abuse identified through data analyses. (Recommendation 12)
    13. The Administrator of FAA should develop mechanisms, including regulations if necessary, for dealer suspension and revocation. (Recommendation 13)
    14. The Administrator of FAA, in coordination with relevant law-enforcement agencies, should enhance coordination within the Aircraft Registry Task Force through collaborative mechanisms such as written agreements and use of liaison positions. (Recommendation 14)
    15. The Administrator of FAA, in coordination with relevant law-enforcement agencies, should develop a mechanism to provide declarations of international operations for law-enforcement purposes. (Recommendation 15)

    If implemented, these changes will clearly affect many individuals and companies that own and operate aircraft. The lawyers in the McAfee & Taft Aviation Group will continue to provide updates as the industry digests this information.

    This article was originally published by McAfee & Taft on March 25, 2020.

  • NAFA Administrator posted an article
    Bonus Depreciation in a COVID World see more

    NAFA member, Air Law Office, P.A. writes about aircraft depreciation bonus under the 2017 Tax Act.

    The IRS is pretty strict when it comes to 100 Percent Bonus Depreciation under the 2017 Tax Act, especially on the fundamentals.

    • Was your aircraft acquired and placed into service after September 27, 2017 and before January 1, 2027 – this one is fairly straightforward
    • Is your aircraft ‘qualified property’
    • Is your depreciable property of a specific type, including tangible property with a recovery period of 20 years or less, such as commercial and non-commercial aircraft – this one is probably affirmative
    • Was your original use of the aircraft the taxpayer’s use or the aircraft was not used by the taxpayer at any time prior to purchase – this one can be a bit tricky
    • Is your aircraft predominantly used for a qualified business use – this is going to be tough in the time of COVID and if you don’t meet 51% ore more qualified business use then you will need to explore an alternative depreciation system (ex., Five Year MACRS)
    • Is your aircraft used predominantly in the United States – this one can be a bit tricky

    There are, of course other nuances like “under contract” and “alternative deprecation models” and if you use your aircraft significantly for nondeductible entertainment travel (ex., vacation) you may be able to take your depreciation and use disallowance percentages to deprecation on a straight-line basis.

    The Bottom Line:  With face-to-face interaction at an all time low, many owners are in danger of loosing their bonus depreciation benefits.  Check in with your financial and legal teams ASAP, before it is too late to address potential pitfalls!  Remember, this article is intended to inform you about issues that you should discuss with your financial and/or legal team and is not intended as legal advice or opinion, you should not act on any information contained in this (or any other) article without directly consulting legal counsel.

    This article was originally published by Air Law Office, P.A. on August 5, 2020.

  • NAFA Administrator posted an article
    FAA Aircraft Registry Reaffirms its Position on Digital v. Electronic Signatures. see more

    NAFA member, Scott McCreary, Vice President at McAfee & Taft, discusses the FAA's Aircraft Registry's position on digital versus electronic signatures.

    The United States Federal Aviation Administration (FAA) issued a Memorandum to the FAA Public Documents Room on September 9, 2019, reiterating the position that it would accept documents with digital signatures, but not accept documents executed with only the electronic signature methodology.  The Memorandum provides that “An electronic signature is a method of signing a document whereas a digital signature is the encryption/decryption technology of which an electronic signature is built. The digital signature secures the data associated with an electronically signed document.”

    The Memorandum confirms that in the past the FAA Aircraft Registry (Registry) may have unknowingly accepted documents with merely electronic signatures. The most common electronic signatures filed with the Registry were produced with DocuSign or Adobe, but the Memorandum confirms both programs have a digital signature option that could be utilized.

    By way of background, in May of 2016 the FAA issued a Notice of Policy Clarification for Acceptance of Documents With Digital Signatures (81 FR 23384). The Policy Clarification confirms that the Registry will accept printed duplicates of electronic documents that display legible, digital signatures that are filed in compliance with Parts 47 and 49 of the FAA Regulations (14 CFR parts 47 & 49). The Policy Clarification is clear that only digital signatures, as compared to the broader classification of electronic signatures, are acceptable. The Registry expands on the distinction between digital signatures and electronic signatures in its AFS-750 Change Bulletin 16-03, which further references FAA Order 1370.104, Digital Signature Policy.

    The Policy Clarification goes on to provide that "A legible and acceptable digital signature will have, at minimum, the following components: (1) Shows the name of the signer and is applied in a manner to execute or validate the document; (2) Includes the typed or printed name of the signer below or adjacent to the signature when the signature uses a digitized or scanned version of the signer’s hand scribed signature or the name is in a cursive font; (3) Shows the signer’s corporate, managerial, or partnership title as part of or adjacent to the digital signature when the signer is signing on behalf of an organization or legal entity; (4) Shows evidence of authentication of the signer’s identity such as the text ‘‘digitally signed by’’ along with the software provider’s seal/watermark, date and time of execution; or, have an authentication code or key identifying the software provider; and (5) Has a font, size and color density that is clearly legible and reproducible when reviewed, copied and scanned into a black on white format."

    Prior to the Policy Clarification, the Registry would only accept originally, ink signed documents. The use of digital signatures has certainly been a great benefit to the industry and very helpful for closing aircraft transactions which require filings with the Registry.

    It is often difficult to determine if a document has been digitally executed, and different programs (such as DocuSign and Adobe) identify digitally executed signatures differently. Parties should be careful to make certain any documents filed with the Registry are ink signed originals or digitally executed in compliance with the Registry requirements.

    This article was originally published by McAfee & Taft on September 9, 2019.

     

     

  • NAFA Administrator posted an article
    How To Shield Bizjet Owners from Virus Claims see more

    NAFA member, David G. Mayer, Partner with Shackelford, Bowen, McKinley & Norton, LLP, discusses ways for bizjet owners to mitigate risk of COVID-19-related claims.

    The sudden onslaught of the contagious and deadly Covid-19 pandemic delivered a severe blow to business aviation’s global flight activity and paused (but did not derail) preowned business jet retail sale and lease transactions. The pandemic has already changed so much in our lives that, for now, no one can envision what a “new normal” will look like for business aviation.

    Regardless of what happens, today, as governments ease shelter at home restrictions, business aircraft owners and lessees, along with their managers and Part 135 operators (together, owners), face an imperative to protect anyone from Covid-19 who might come in physical contact with, or travel on, the operator’s business aircraft.

    These people include owners and their families, other passengers, crew, independent contractors, employees, and ground support personnel (together, affected individuals). The imperative applies both to Part 91 and 135 operations. If owners do not meet this obligation head-on, it seems inevitable that affected individuals will make negligence claims against owners for exposure to, and illness or death from, Covid-19.

    THREE WAYS TO MITIGATE RISK OF COVID-19-RELATED CLAIMS

    Owners should use this period of slower flight and market activity to take the following three actions that might limit the chances for affected individuals to contract Covid-19 and blunt any incentive to make damage claims against owners for their alleged negligence:

    First, develop comprehensive business aircraft protocols for each business aircraft to create a healthy and safe environment inside of, and close to, the aircraft.

    Second, request Covid-19 waivers and indemnities from affected individuals to mitigate the risk of Covid-19-related liability claims based on negligence or other legal theories.

    Finally, confirm whether the owner carries, or the owner can buy, liability insurance coverage that will respond to such liability claims.

    Covid-19 Negligence Explained

    As a general legal principle, business aircraft owners may be negligent and liable for money damages if the owner breaches its duty of reasonable care to maintain a safe and healthy environment for affected individuals inside of, or close to, their aircraft.

    Broadly speaking, the duty occurs because an owner can reasonably foresee that Covid-19 might live in and on business aircraft, be transmitted inside or close to the aircraft by one person to another, or from personal items such as luggage to an affected individual. If negligence is proven, a judge or jury can then award significant money damages in favor of the affected individual or his/her estate.

    Importantly, the affected individual who contracts Covid-19 must prove that the breach of the owner’s duty of reasonable care is the “proximate cause” of the Covid-19 illness or death. That is, the affected individual must provide evidence of an almost indisputable connection between his or her Covid-19 condition and the exposure to Covid-19 inside of, or close to, the business aircraft.

    As such, causation is likely to be the most difficult element to prove, especially given the challenges in tracing from the affected individual to the aircraft environment as the only possible source of the affected individual’s infection. However, no owner should rely on the difficulty of proving causation as an excuse to ignore safeguards and fail to develop a high-quality aircraft protocol.

    DEVELOPING A COVID-19 AIRCRAFT PROTOCOL 

    As noted above, owners can, and immediately should, develop and enforce a comprehensive protocol designed to protect any affected individual who is inside of, or might come in physical contact with, a business aircraft, its cargo, and any other affected individual. A protocol, in this context, refers to written standards, practices, and behaviors established by owners to ensure that the environment inside of, and close to, their business aircraft is free of the Covid-19 infection.

    Although important, cleaning and disinfecting an aircraft by itself does not constitute an aircraft protocol. Owners should include many other elements in a protocol such as screening each affected individual, safely bag or wrap potentially infected luggage, test passengers for Covid-19 before the flight, and provide each passenger with personal hygiene supplies and masks that must be used inside the aircraft.

    To help them meticulously design and write, as well as implement and update, a Covid-19 health and safety protocol, owners should hire appropriate medical, cleaning, and safety experts to contribute relevant parts of, and comment on, the entire protocol. Some managers and Part 135 operators have already taken steps to create all or part of a protocol or a rough equivalent, which is positive.

    Further, owners should conduct periodic audits to confirm strict compliance with the protocols. They should also retain records on, and immediately rectify any shortfalls from, the protocol implementation such as recording dates and times of disinfecting in and around an aircraft. These steps might entail some additional effort, but they should help mount a good defense to negligence claims.

    In all situations, owners and affected individuals should limit travel with operators that have not developed and comply with a protocol on every flight. After all, only one mistake or negligent act or omission can lead to tragic consequences involving Covid-19.

    COVID-19 RESOURCES TO CREATE A PROTOCOL

    In writing and updating the protocols, owners, experts, and their lawyers should study pertinent information from, among others, the World Health Organization, Centers for Disease Control, FAA, EBAA, and NATA. Notably, NBAA recently published a comprehensive resource that owners can use as the foundation of a quality aircraft protocol.

    Aircraft manufacturers should be able and willing to provide consulting services and aircraft products, including fresh air intake and filtering systems, to mitigate safety risks and negligence claims.

    LIABILITY INSURANCE COVERAGE TO MINIMIZE PAYOUTS FROMCOVID-19 CLAIMS

    Liability insurance might cover Covid-19 negligence claims relating to business aircraft. Owners and their aviation insurance experts or lawyers should examine the wording in their liability insurance policies to determine whether any coverage exists against these claims. Some, but not all policies, contain explicit exclusions for viruses, which means Covid-19 claims might not be covered.

    Prospects to buy such insurance now are dismal, but large accounts might have a shot. If there is potential coverage, the insurer might have a “duty to defend” the insured, at the insurer’s expense, and therefore engage counsel to defend the insured against the Covid-19 claims.

    WAIVERS AND INDEMNITIES TO LIMIT IMPACT OF COVID-19 CLAIMS

    Each owner should ask any affected individual, before a flight, for a written, signed waiver of claims for Covid-19 illness or death. Separately, managers and Part 135 operators might consider asking for waivers and indemnities from owners for damages to furniture and hard surfaces in the aircraft allegedly caused by disinfecting chemicals used in or on the aircraft to rid the areas of Covid-19. Courts generally enforce properly drafted waivers and indemnities, but applicable laws might alter this outcome.

    CONCLUSION

    Covid-19 affects all of us in different ways. In business aviation, it seems urgent that, as governments lift stay-at-home restrictions, owners develop and implement comprehensive Covid-19 health and safety protocols for their business aircraft, secure waivers, and indemnities and maintain appropriate liability insurance.

    Properly structured, a protocol can protect the lives of business aircraft owners and their families, crews, independent contractors, employees, and ground support personnel from illness and death caused by Covid-19. Protocols can boost confidence in traveling by business aircraft and mitigate the risk of complex, expensive, and lengthy liability lawsuits against the business aircraft owners, managers, and Part 135 operators.

    The right choice seems obvious, but the end of this healthcare crisis and recovery of business aviation remains far from certain.

    Author note: “This blog is not intended to create or constitute, nor does it create or constitute, an attorney-client or any other legal relationship. No statement in this communication constitutes legal advice nor should any communication herein be construed, relied upon, or interpreted as legal advice. This communication is for general information purposes only regarding recent legal developments of interest, and is not a substitute for legal counsel on any subject matter. No reader should act or refrain from acting on the basis of any information included herein without seeking appropriate legal advice on the particular facts and circumstances affecting that reader.”

    This article was originally published by AINonline on May 15, 2020.