““[Bill Gates] has been historically one of my best supporters…One of my favorite e-mails he ever sent me…I proposed this crazy project. And he sent back this two-line response: ‘This has got to be the craziest thing you’ve ever suggested. Please proceed.’” ”
Registering your aircraft
Registering your aircraft in the U.S. is a seemingly minor paperwork item that you may not think about during the heady hunt for a business jet. But unless the registration is properly handled, that aircraft you buy might not be legal to fly.
Subject to some exceptions, an aircraft must be registered with an appropriate aviation authority before it may be legally operated in any country. To be eligible for U.S. registration by the FAA, an aircraft must not be registered under the laws of a foreign country; must be owned by a citizen of the U.S., a citizen of another country "lawfully admitted for permanent residence" in the U.S., or a corporation that is not a citizen of the U.S. but is organized and doing business under the laws of the U.S. or a state; and must be based and primarily used in the U.S.
The good news is that registering an aircraft in the U.S. is a relatively simple and straightforward process. But there are enough potential pitfalls and daunting details-including the new international aircraft registry-to suggest that every prospective buyer would be wise to review the basics of aircraft registration.
"Under [Federal Aviation Regulations] Part 47, it is the buyer's responsibility to make sure the aircraft is registered," said Larry Barnhart, a technical specialist with the Pilot Information Center of the Aircraft Owners and Pilots Association. "If a broker or dealer handles the sale, the buyer should spell out in the purchase contract who has responsibility for handling the registration." Whatever that contract stipulates, it is still the new owner's responsibility to submit the application for registration and to make sure evidence of ownership-for example, the bill of sale-is submitted to the FAA.
Because aircraft do not have certificates of title (as vehicles do), some people believe an aircraft's registration certificate provides proof of ownership. This is not true, according to Kenneth Mayfield, vice president and general counsel of Aero Records & Title Company in Oklahoma City. Rather it is the bill of sale that provides proof of ownership. "Consider the bill of sale for an aircraft similar to the deed for a house," he said.
To help establish ownership, title searches (notwithstanding the lack of aircraft "certificate of titles") are highly recommended. "We search the FAA registry for bills of sale, liens, releases and other conveyances," Mayfield explained. In fact, if a lender finances the purchase, it will demand a title search-and for good reason. A title search ensures the paper trail of ownership is complete and that ownership is clear, or unencumbered by liens or other claims. Parties ranging from a former spouse to a maintenance facility alleging an unpaid bill can file liens against an aircraft.
"There have been cases in a divorce where the husband was granted title to the plane and the wife didn't get as big a settlement as she wanted, and she slapped a lien on the airplane," said Christina Klein, vice president at Federal Aviation Title Co. in Oklahoma City. "Even if the lien is [invalid] at the FAA, it can still be filed and create a cloud on the title that has to be resolved." A "clear title," according to the FAA, "means there is no unreleased chattel mortgage, security agreement, tax lien, artisan lien or similar document on record against the aircraft." However, this definition does not consider the effect of breaks in the chain of title and issues resulting from name variances that occasionally arise.
A title search will not reveal repairs or alterations the aircraft has undergone. However, you can conduct a search of the FAA's airworthiness records to identify repairs and alterations evidenced by an FAA Form 337. Not all sellers are forthcoming, or aware of an aircraft's complete history. Title insurance, meanwhile, protects against fraudulent title transfer, among other title risks. For example, cases have occurred where an unscrupulous owner has sold the same aircraft to more than one buyer.
The FAA itself does not perform title searches. Individuals may do searches on their own, or engage aircraft title companies, which typically charge nominal fees for these services. These companies also can arrange title insurance, handle registration and act as escrow agents. The majority of these companies-as well as several law firms that offer similar services-are based in Oklahoma City, home of the FAA's Aircraft Registration Branch. This allows title companies or law firms to hand-deliver documents and expedite the registration process. The Branch handles about 70,000 registrations each year, and it's not unknown for mailed applications to get misplaced or meet with handling delays.
Registration Ins and Outs
When you buy an airplane, an Aircraft Registration Application (FAA Form 8050-1) and evidence of ownership are filed. You retain the pink copy of the triplicate registration form to carry aboard the aircraft. This permits you to fly within the continental U.S. for 90 days, by which time you should have received the permanent registration certificate. Processing of the permanent registration reportedly takes an average of about 30 days.
To register an aircraft with the FAA, you must be a U.S. citizen or a resident alien, or meet alternative eligibility requirements. Partnerships and corporate ownerships must also meet citizenship or alternative eligibility requirements. These alternatives include properly configured owner trusts, nonvoting trusts, limited liability companies (LLCs) and non-U.S. citizen corporations. The latter alternative is also one of the more commonly used exemptions, BAPU (Based and Primarily Used), which enables corporations that do not qualify as a U.S. citizen to register aircraft at the FAA. To qualify, the corporation must be formed in one of the states of the U.S., the aircraft must be based in the U.S., and at least 60 percent of the aircraft's flight hours must occur on flights that begin and end in the U.S. Title companies and aviation attorneys can help you navigate the rules for any of the registration alternatives for which you may be eligible.
The registration application itself appears deceptively simple. But no room exists for error. Any mistake-using improper titles of corporate officers or not filling in the aircraft make and model in the appropriate manner, for example-will result in rejection. The most common mistake is that applicants neglect to print their names below their signatures, according to Connie Jones, a supervisory program analyst in the technical section of the FAA's aircraft registry. The FAA will alert a title company within seven days if it spots a problem with an application, but the agency takes longer to alert private filers.
"It's nit-picky," Klein said of the FAA's application review process. "They're very particular about how things are done."
Among the items the FAA is most concerned about is having the owner's proper street address. (The use of post office boxes is not permitted.) "That's critical," Jones said. "We have to be able to send out safety notices and advisory circulars. If you as the aircraft owners are not getting those safety notices, that might be of great importance."
Some buyers intend to use their jet for business or vacation travel outside the U.S. soon after taking possession. However, the pink copy is valid only for flights in the continental U.S. If you need to travel outside the lower 48 states before receiving permanent registration, you should file an International Declaration of Operation Certificate. You will state on the certificate where and when you anticipate flying internationally. This form accelerates permanent registration and also gets you a "fly wire," a document evidencing registration that's good for international flight.
One caution: a growing number of buyers have been filing these forms simply to expedite registration, and the FAA has expressed concern about bogus declarations. "Don't request a fly wire unless you actually need one," advised Mike Nichols, a vice president of operations, education and economics at the National Business Aviation Association. "The FAA says it's going to crack down. If someone requests a declaration they don't need, there may be fines or penalties. If you realize you need to make an international flight [before you receive your permanent registration], request a fly wire at that time."
There's a certain pride of ownership in having a jet, but some buyers prefer to remain anonymous. "We have a lot of clients who say, 'I don't want to appear in the public records,'" said Frank Polk, an attorney with the aviation law firm of McAfee & Taft in Oklahoma City.
These owners include celebrities and businesspeople concerned about the confidentiality of their travels. Web-based software now allows the public to track the movements of just about any general aviation aircraft on an IFR flight plan. Since FAA registration records are open to the public, it's relatively easy to find out who owns what aircraft, and then monitor their travels. This can be invaluable information for, say, paparazzi or a business competitor.
Owners concerned about this possibility can shield their title by registering the aircraft with a trustee. Under this arrangement, the trustee takes ownership title of the aircraft and gives the trustor the right to operate it for his or her benefit. (Citizenship rules still apply in these arrangements.) Some such owners establish the trust agreement with a corporate entity with which they are already associated. However, aviation attorneys warn that ownership links can be determined in these cases; if you want to own anonymously, it's preferable to establish a trust independent of any entity you can be identified with, the experts say (and if the beneficiary of the trust is not a U.S. citizen, the trustee and the beneficiary must be independent).
After the application has been filed, processed and approved, the FAA transfers registration to you and sends a permanent registration certificate to be carried aboard the aircraft.
Some owners want to change the registration "numbers" (which include letters) on an aircraft, perhaps to display their initials, to have an alphanumeric sequence matching other aircraft they own or for other reasons. You may select any unused registration number, with a few provisos. For example, some numbers are reserved and others aren't legal (such as any number starting in "0"). Changes in registration numbers are made after the FAA approves permanent registration. A title company can reserve and file the necessary paperwork. The FAA fee for a change in registration number is $10. Once the documents have been filed, the agency grants approval within 30 days. (The aircraft's transponder must be restrapped to the new number.)
The Cape Town Convention
The Cape Town Convention, which took effect March 1, 2006, created the International Registry (IR) of Mobile Assets, which now applies only to aircraft and aircraft engines, but will eventually apply to other mobile goods, such as trains. It doesn't take the place of U.S. registration, but supplements it by providing a means for individuals and organizations to register their international financial interests in aircraft assets. Though its offices are in Dublin, Ireland, the IR (often referred to as "Cape Town" in aviation circles) exists only in cyberspace; it is automated and Web-based.
By protecting the interests of creditors, the IR thereby facilitates economic activity. Previously, creditors had few ways to recover assets from buyers who defaulted on loans or simply disappeared with airplanes in many parts of the world. Now claims can be posted on the registry, throwing a big wrench into any international grey market in aircraft. The Convention applies to any fixed-wing aircraft that can carry eight or more people (or equivalent cargo load) or rotorcraft that carry five passengers or equivalent cargo; and the turbine engines that power these aircraft, provided they meet or exceed the minimum takeoff horsepower or thrust specified in the Protocol to the Convention. (Aircraft of any size can be registered if the owner wishes.) Registration of security (financial) interests in aircraft and engines on the IR is not required by law, but purchasers and lenders typically require it to better protect their interests in the items.
"A lot of people think it's like the Easter Bunny or Santa Claus-they don't believe in Cape Town," said Frank Polk, an attorney with the aviation law firm of McAfee & Taft in Oklahoma City. "They say, 'Don't worry about Cape Town. We'll file with the FAA and that's enough.' But it's dangerous to listen to those folks."
One reason you ignore Cape Town at your own peril (besides the fact that loans on such aircraft are now conditional on international registry) is that claims filed with the IR take precedence over all others. And unlike liens filed in the U.S., Cape Town liens are treated on a first-come, first-served basis; whoever files first has first stake in any judgment. The relative merits of multiple liens are meaningless for the purposes of Cape Town. The registry went through some growing pains when it first came online. Then, it could take two weeks or more to complete the registration process. Now it takes only a fraction of that time.
"If you hire somebody to do it for you, you can do it in a couple of days," Polk said. "The problem is, people think, 'I can do this myself.' It looks easy if you look at the site. We have lots of those conversations, people trying to set up an account. And a few weeks later, they call us back."
To Learn More...
Information about registration is available on the FAA's Web site. Click on "Licenses & Certificates" and then on "Aircraft Registration." You can also call the FAA at (405) 954-3116 or (866) 762-9434.
Members of the National Business Aviation Association can get more information about the Cape Town Treaty at www.nbaa.org/capetown or by calling (202) 783-9000. You can also visit the International Registry of Mobile Assets site at www.internationalregistry.aero/irWeb/Controller.jpf.
Members of the Aircraft Owners and Pilots Association can get information on registration and the Cape Town Treaty at www.aopa.org or by calling (301) 695-2000.
Advocate Consulting, an aviation law firm, has posted articles about registration at advocatetax.com/hotTopics.php.