GATS! Coming Soon to a Country Near You see more
NAFA member, Wright Brothers Aircraft Title, discusses the Global Aircraft Trading System (GATS).
The Global Aircraft Trading System, or GATS, is an initiative stemming from one of the most successful multi-country treaties. The Cape Town Treaty, signed in 2001, set up uniform rules and regulations to help facilitate asset-based financing and leasing of aviation equipment worldwide.
As discussed in our previous blog, The History behind the International Registry (another initiative of Cape Town), the treaty established a set of laws more favorable to lenders that would expand international financing opportunities and open doors for new market entrants around the globe.
The Aviation Working Group (AWG) was a central participant in this process as a not-for-profit legal entity contributing to the development of policies, laws and regulations that advance international aviation financing and leasing.
Their latest project, coming soon to a country near you, is GATS, which specifically aims to “increase the transparency of and confidence in aircraft trading, and further protect rights, by introducing a secure, live and searchable electronic ledger displaying details of ownership and security interests.”
Both the International Registry and the Global Aircraft Trading System are designed to modernize and facilitate, via electronic registries, the efficient and secure trading and financing of aircraft equipment, while protecting the rights of all parties. GATS, however, focuses on “reducing the burdens on lessees, lessors and financiers” and even more so, protecting the lessee’s rights.
Out of necessity, the trading and financing of aircraft equipment subject to leases continues to grow in the aviation industry. Likewise, the need for trusts. You can read more about this in the blog Why an Aircraft Should be Registered in Trust, by our sister company, Aircraft Guaranty Corporation.
Subsequently, the need for more efficient lease and trust transactions has become increasingly important, especially in commercial aviation where ownership interests in leased collateral changes hands on a frequent basis. Every time the ownership changes, the lease between lessor and lessee must also change, creating a heavy burden on the lessees.
An airline employee once complained that they had to alter a lease agreement 11 times in 2 years. Placing aircraft in trust transfers the burden of these ownership changes to an owner trustee, allowing lessees to focus on operating their airlines. While the benefits of GATS can clearly be seen in the commercial airline realm, the benefits to the business and general aviation sector remain to be seen.
The fully electronic system will be voluntary and open to all industry participants. With e-signatures, e-delivery of documents and use of a secure e-ledger to record transactions, the platform will detail the trust history of aircraft that are registered on GATS.
The new registry could be another tool for aviation escrow services to use in Clearing Clouded Aircraft Titles, similar to an FAA title search. While this could increase safety and transparency in international aircraft transactions, it will also increase costs. It may also increase the time it takes to close, depending on how quickly and efficiently the new GATS registry system can be searched.
At first, any GATS trust will be formed in Ireland, Singapore or the U.S., and subject to the applicable jurisdiction for the creation and transfer of security interests. Available jurisdictions may expand in the future.
The rights of lessees will be specifically protected by prohibiting transfers unless agreed upon conditions in favor of the lessee have been met. GATS will also further “reinforce ‘no increased obligations’ lease provisions in favor of lessees”.
The GATS platform for electronic trading is practically here. The static URL was activated on December 10, 2019, and from March 1st to 31st a ‘simulated transaction period’ will be open. The full launch is targeted for April 1, 2020.
With the FAA issuing an opinion on January 22nd concluding that “the GATS transitional trust documents comply with applicable federal law and will support aircraft registration in the name of a GATS trustee”, it appears that GATS is ready for takeoff.
Stay tuned for more GATS developments. For more information on GATS, visit awg.aero/project/gats/.
This article was originally published by Wright Brothers Aircraft Title on February 10, 2020.
Using Digital Signatures in Aircraft Title & Registration see more
NAFA member, Debbie Mercer-Erwin, President of Wright Brothers Aircraft Title, discusses the use of digital signatures in the aircraft title and registration process.
It is an exciting topic and a fundamental priority for Wright Brothers Aircraft Title (WBAT) to stay current with technology, especially when it has the potential to increase efficiency and security in our services, as well as help reduce time and cost in transactions for our clients. We are always looking forward to how our company could put certain applications to use, even Blockchain in Aviation Escrow Transactions. For this month’s topic, we don’t have to guess though.
One huge hindrance to efficiency in aircraft title registration is the paperwork involved – handling and distributing numerous paper documents between multiple parties, whether in the United States or internationally. Printing, signing, mailing – more than once if corrections are needed, let alone if the documents are lost in the mail altogether – is enormously time-consuming.
WBAT wanted to find a way to streamline certain processes and reduce our amount of paperwork, while maintaining a high level of security – to save time and money within our business and for our clients. We were immediately interested in the use of Digital Signatures, which is a specific implementation of an electronic signature (eSignature).
The US Federal ESIGN Act defines an eSignature as “an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record”. A Digital Signature takes this a bit further with the addition of encryption/decryption technology – securing the data associated with an electronically signed document and creating a robust audit trail.
Digital Signatures have been used for electronically signing an array of documents – sales contracts, offer letters, lease agreements, liability waivers, financial documents, etc. – and are legally enforceable in most business transactions throughout most of the world.
We needed to make sure this solution would work with multiple signers on complex documents though and be compliant with the Federal Aviation Authority guidelines, including their Notice of Policy Clarification for Acceptance of Documents With Digital Signatures (81 FR 23384), which requires Digital Signatures – traceable and digitally encrypted – not just eSignatures.
DocuSign was the clear answer for our business – meeting some of the most stringent US, EU, and global security standards, and using the strongest data encryption technologies available. It also happens to be the leading eSignature brand, with the ability to:
- Easily upload and send documents for signing
- Sign at any time, on a wide variety of devices, from nearly anywhere
- Check signing status and send reminders to keep things moving forward
This software has enabled us to get agreements done faster with fewer errors, which directly translates to lower cost, for our business and our clients. We’ve accomplished this with using Digital Signatures mainly for Bill of Sale and Application for Registration documents, which directly benefits our buyers and sellers.
There are more benefits on the horizon though with more widespread use of this technology. With more lenders in the industry using Digital Signatures, it might not even be necessary to presign a release of the lien. Instead, the involved parties would digitally sign at closing when money is distributed, reducing the risk for all.
We’re excited to see where this technology takes us and the aviation finance industry. In the meantime, we’re thrilled with the results we’ve already seen and the time and cost savings we’re able to pass down to our clients.
This article was originally published by Wright Brothers Aircraft Title on September 16, 2019.
OIG Reports on FAA Registry Update - What Does It Mean? see more
NAFA member, Debbie Mercer-Erwin, President of Wright Brothers Aircraft Title, discusses the OIG, the FAA Registry Update, and what it means for the aviation industry.
There are changes ahead that will modernize the Federal Aviation Authority (FAA) – bringing it up to date with the latest technology and security measures. One of the key updates will be to the registry system, which is vital for ensuring aircraft are legally owned, maintained, and operated.
The deadline for the huge overhaul is now October of 2021, which doesn’t seem that far away. The Office of the Inspector General (OIG) recently issued a 29-page report – “FAA Plans to Modernize Its Outdated Civil Aviation Registry Systems, but Key Decisions and Challenges Remain” – regarding the progress the FAA is making in order to meet the modernization mandate.
The OIG delved into what they think the FAA needs in place to complete the required upgrade on time – their report put into question whether it could be accomplished, stating: “The Registry’s systems are outdated, and FAA has yet to develop a detailed plan for modernization.”
The FAA’s plans are not the only consideration in the timeframe though, given the Congress factor. Because “the regulations that govern aircraft registration do not reflect current technology or business practices”, modernizing the FAA’s registration system will require rulemaking by Congress, which can take some time.
A Modern System
This is a significant update to the Registry – many provisions were implemented with the Reauthorization Act of 2018 (HR 302) – which Wright Brothers Aircraft Title covered in more depth in Highlights of the 5 Year FAA Reauthorization Act.
The new registration system, Civil Aviation Registry Electronic Services (CARES), “is expected to streamline processes, allow for the submission of electronic applications and forms, improve controls, automate registration processes, and improve online data availability” according to the FAA. Its key aims are:
- Web-based access to all public data. For the first time in history, the general public will be able to view FAA records online in real time. Currently, what isn’t already electronically maintained is held in the Public Documents Room (PDR) available for those who have access. Any electronic records are only in real time via the computers at the PDR – outside access is limited to information that is updated once daily.
The modernization mandate includes digitizing all aircraft registration documents for real-time, public and web-based access, which means phasing out the PDR at the FAA. Furthermore, using the PDR will incur a fee if the business could have been conducted by electronic means as efficiently.
- Automation of application services (processes and procedures). For the first time in history, the general public will also be able to file any document electronically. Most aircraft registration functions still require paper documents that are manually scanned and reviewed by Registry examiners. Digitizing and automating the registration process means the role of FAA examiners will change, becoming more high-level.
In Order to Proceed
Detailed estimates of technical and operational requirements for the new system are vital right now – anticipating the rulemaking, cost and schedule that will be necessary to successfully complete the expansive project. Some key questions need to be answered:
What are the new components/upgrades needed in the new system? The FAA is considering: automated approvals for low-risk applications; automated verification of fraudulent or incorrect submissions; additional security controls such as crosschecking information with non-agency entities; the registry structure, including combining aircraft and airmen systems; and matters of data storage with a cloud- or server-based system.
How will the FAA fund the new system?It hasn’t been decided yet – funding modernization projects usually comes from its facilities and equipment (F&E) account, but they may be able to use money from its operations and maintenance (O&M) account. This must be decided before it becomes a part of the agency’s budget.
What rulemaking via Congress is necessary in order to proceed?The FAA will have to develop a rulemaking that revises current regulation and allows for the electronic registration of aircraft –to improve controls, strengthen requirements, and implement digital signatures and electronic payments – a complete outline of the new system is needed beforehand to know exactly what rules to change
Now What? – The Challenges
The OIG report contained four main recommendations to the FAA. The FAA accepted and outlined a schedule for implementing them:
- Develop and implement timeline for making key decisions regarding CARES by May 31, 2019.
- Define desired capabilities of CARES by Dec 31, 2019
- Develop and implement a procedure to obtain industry feedback by Oct 31, 2019.
- Develop and implement a plan for maintaining real-time access to data by June 30, 2019.
There are challenges to face though, including: the transfer of a huge amount of data (with a lot of outdated/large files) to a new system; meeting the needs of registry users – aircraft title companies, financial institutions, aircraft manufacturers, airmen, other government agencies etc. – to ensure the operation of aircraft worldwide; and addressing workforce issues arising from role changes.
The Transition & After
The OIG has concerns, but if the FAA stays on track with this schedule, they can meet the October 2021 deadline, barring delays with Congressional rulemaking.
Updating and modernizing the new system will be a great improvement, but will not fully alleviate all of the pitfalls to closing yourself that we outline in our blog, Can’t I Handle My Own Aircraft Closing?. It will still be important to hire a company that knows the ins and outs of the FAA system to avoid costly errors that could take time and money to correct.
Ultimately, the changes ahead will modernize the FAA’s registry system, helping to bring the aviation industry up to date in technology and security measures. There is significant work to do, but we’re confident that every entity involved in this important endeavor will fulfill expectations.
This article was originally published by Wright Brothers Aircraft Title on their blog on July 16, 2019.
TUE and PUE: Closing the Gap Between the FAA and IR see more
NAFA member, Debbie Mercer-Erwin, President of Wright Brothers Aircraft Title, writes about closing the gap between filing at the FAA and registering at the International Registry.
In previous blogs we have discussed the paperwork gaps that can occur around aviation escrow transactions and how Wright Brothers helps to Close the Gaps, whether between the time you pay for an aircraft and the time the necessary documents are filed with the Federal Aviation Authority (FAA), or between documentation Filing and Recording at the FAA.
There is also a gap between filing at the FAA and registering at the International Registry (IR). In each of these scenarios, an escrow agent, as a “PUE”, can help close the gap with a more seamless transaction for a “TUE”, ensuring representation for each party. In the gap between the FAA and IR specifically, “The Closing Room”, a virtual safekeep for all notices between parties, can be a key factor and a huge help.
TUE? PUE? – The Differences
The terms TUE and PUE are often used in the world of aviation escrow, but what do they mean? A TUE is a Transacting User Entity, such as a buyer or seller, lender or debtor, whereas a PUE is a Professional User Entity, like Wright Brothers for example. Why is this important in terms of filing at the FAA or registering an interest with the IR?
While a TUE is the party named in the filing or registration, a PUE is not. A Professional User Entity can however file or register on behalf of a Transacting User Entity. Representation by a PUE, like WBAT, can ensure that the correct steps for both filing at the FAA and registering at the IR are followed, securing the interests of all parties involved and only upon the approval of each.
Between the FAA and the IR – Possible Repercussions
Documents are filed at the FAA for recording, and notices of interest are registered at the IR. In general, a U.S. document is filed with the FAA first, where a code is then issued to register the notice of that same interest with the IR.
What happens if you file at the FAA and not the IR? The IR was granted super priority over the FAA, and the IR gives “first in time, first in right” status to all notices registered there. This basically means that if you file at the FAA but do not register the notice at the IR, and someone else files a notice of a competing interest at the IR before you get there – they win.
The same is true if you file at the FAA and intend to register at the IR, but someone registers a competing interest before you do. They got there first, so they win. This makes the gap between filing at the FAA and registering at the IR extremely important.
The Closing Room – How it Helps Save Time
The Closing Room is an IR function that allows a coordinator, a PUE like Wright Brothers, to set up a virtual space for the interested parties (sometimes PUEs and TUEs) to hold all registrations until they are approved and ready to process. This space allows the PUE to “preposition” registration information in conjunction with any other claimed interests before submitting them. It allows for all PUEs and TUEs to view each registration and requires the approval of each in order to “close” the room, which then releases all registrations. Closing the room and filing at the FAA can thus happen almost simultaneously.
In this way, “The Closing Room” helps close the time gap between the registering of an interest at the IR and the filing of documents at the FAA, especially if there is a competing claim. Of significant note here is that in order to lessen the number of “hands in the pot” and really streamline the process and close the gap, the PUE should be handling all FAA filings and IR registrations on a regular basis so that all documents among all parties are handled correctly. Having interests preapproved and consented to before closing is always a good thing.
This article was originally published by Wright Brothers Aircraft Title on May 21, 2019.