Aircraft trusts are an acceptable means for registering aircraft in the United States. What was initially set up to assist the commercial aviation industry is now also used by private aircraft owners to obtain US registration.
The Civil Aeronautics Act of 1938 states that the owner of an aircraft is the person who holds the legal title to it. The FAA expanded this rule in 1939 when they determined that the buyer under a conditional sales agreement is the owner for FAA registration purposes, even though the title to the aircraft was vested in the seller and remained in the seller until all payments were made.
As sales became more complex over the years following this ruling, it was expanded to include nominal purchase option leases, synthetic leases, and other forms of leases generally referred to as “finance” leases.
Once an aircraft owner is identified, the next step is to determine if the owner is eligible to register the aircraft. The Transportation Code states that only aircraft owners who are citizens of the United States are permitted to register an aircraft. Eligibility requirements are listed in our blog, What is an Aircraft Trust and How does it Work?
In the 1970s, ownership of aircraft by trustees became common to accommodate the ownership challenges of the airlines. As publicly traded entities, ownership of airlines changes on a regular basis, making it impossible to determine actual ownership from one minute to the next. According to FAA registration rules, US airlines do not qualify to be registered in the US, but need to be in order to successfully operate in their home market. Registering in trust with the airlines as the beneficiary of the trust solved this problem. FAA would approve registration of the aircraft in the name of an owner trustee. These 1970s FAA opinions were in response to changes in the way aircraft were being owned and financed. Because investors and equity partners from outside the US were investing in aircraft, the ruling was used for commercial airlines, and even today it facilitates globalization in our economy.
Initially, the FAA required that non-US citizen beneficiaries could not have more than 25% interest in the aircraft. On January 1, 1980, an amendment to the Federal Aviation Regulations (FARs) proposed by the FAA became effective. This amendment covered the registration of aircraft subject to various forms of ownership, which for the first time included trustee-owned aircraft. It set the requirements applicable to the registration of the aircraft owned by trustees.
The last sentence in the amendment states that “nothing in this paragraph prevents those persons from having more than 25 percent of the beneficial interest in the trust.” This refers to people who are neither US citizens or resident aliens.
There have been many changes in financing, leasing, and operating arrangements for aircraft over the years. It is no longer common to find multiple equity investors as beneficiaries under one trust in aircraft financing, leasing, or operating arrangements, although there are often multiple owners of an aircraft which means there may be more than one non-citizen trust (NCT) owner of an aircraft.
Aircraft Guaranty has been helping owners register their aircraft since 1989. We’re available to answer any questions you may have on trusts.