[Federal Register Volume 78, Number 117 (Tuesday, June 18, 2013)]
[Rules and Regulations]
[Pages 36412-36424]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-14434]
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DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Chapter I
[Docket No. FAA-2011-0012]
Notice of Policy Clarification for the Registration of Aircraft
to U.S. Citizen Trustees in Situations Involving Non-U.S. Citizen
Trustors and Beneficiaries
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Notice of FAA policy clarification.
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SUMMARY: Notice is hereby given of the FAA's clarification of its
policy regarding the registration of aircraft to U.S. Citizen Trustees
in situations involving non-U.S. citizen trustors and beneficiaries.
DATES: Effective Date: The policy described herein is effective
September 16, 2013.
FOR FURTHER INFORMATION CONTACT: Joseph Standell at 405-954-3296,
Office of Aeronautical Center Counsel, Federal Aviation Administration,
6500 S. MacArthur Blvd., Oklahoma City, Oklahoma 73169.
SUPPLEMENTARY INFORMATION:
Background
The FAA has been reviewing policies and practices regarding the
registration of aircraft in the United States involving U.S. citizen
trustees and non-U.S. citizen trustors and beneficiaries. Such
arrangements are commonly referred to as non-citizen trusts. The FAA
began its review in part because of problems the FAA has experienced in
obtaining important operational and maintenance information concerning
such aircraft from the registered owners, i.e., the owner trustees. The
problems in obtaining such information in turn affected the FAA's
ability to conduct fully effective oversight of such aircraft when
operated outside the United States, and to provide foreign civil
aviation authorities with information on those operations in support of
the safety oversight activities of those authorities. The FAA also
undertook the review of non-citizen trusts to assure compliance with
the FAA regulatory requirements for non-citizen trusts contained in 14
CFR 47.7.
As part of its review of non-citizen trusts, the FAA published a
notice of public meeting inviting members of the public to discuss the
use of non-citizen trusts to register aircraft in the United States (76
FR 23353, April 26, 2011). In the notice, the FAA set forth several
questions in order to elicit a robust discussion of the issues. Among
other things, the FAA summarized the requirements in existing U.S. law
that only an ``owner'' may register an aircraft, and that generally
speaking only citizens of the United States that are owners are
eligible to register aircraft. Thus, the FAA Aircraft Registry is an
``owner'' registry; it is not an ``operator'' registry.
The FAA met with interested members of the public on June 1, 2011,
in Oklahoma City, Oklahoma.
[[Page 36413]]
Representatives of trade associations, law firms, aircraft
manufacturers, lenders, lessors, aircraft operators, trustees and
others were present. The proceedings of that meeting were transcribed,
and the transcript was made available for purchase from the court
reporter to members of the public.
The FAA received a number of written comments from members of the
public in response to the questions raised in the April 26, 2011,
Federal Register notice. The FAA also received written comments in
response to its request at the conclusion of the public meeting for
additional input from the meeting participants and all others who had
an interest in the issues surrounding non-citizen trusts. An
organization (the Aviation Working Group, or AWG) that represents a
wide range of aviation industry participants on aviation regulatory and
commercial issues submitted a document on May 26, 2011, in which its
members and other supporting entities shared their views concerning the
various questions posed by the FAA in its April 26, 2011 Federal
Register notice. The AWG also participated at the public meeting on
June 1, 2011, and submitted additional written comments on June 30,
2011.
After considering the written comments submitted by the public and
the information received at the June 1 public meeting, the FAA
published a Notice of Proposed Policy Clarification for the
Registration of Aircraft to U.S. Citizen Trustees in Situations
Involving Non-U.S. Citizen Trustors and Beneficiaries in the Federal
Register on February 9, 2012. (77 FR 6694). That notice contained a
detailed discussion of the FAA safety oversight obligations under U.S.
and international law, and how those obligations related to the FAA's
rules and practices on the use of non-citizen trusts to register
aircraft in the name of owner trustees. The FAA's proposed policy
clarification in the notice was designed to help the public better
understand the FAA's rules and practices on non-citizen trusts. The FAA
suggested changes to provisions in trust agreements to ensure
consistency of those agreements with FAA rules, policies, and
practices, and to enable the FAA to facilitate the registration of
aircraft in the future that are owned in trust. An example of a
standard trust agreement with FAA-suggested changes incorporated was
attached at the end of the February 9 notice. The FAA invited the
public to submit written comments on the proposed policy clarification
by March 31, 2012.
In response to the initial reaction to the February 9 notice, the
FAA decided to hold a second public meeting to allow the public to
provide views on the proposed policy clarification. The FAA published a
notice of public meeting inviting members of the public to discuss the
proposed policy clarification on the use of non-citizen trusts to
register aircraft (77 FR 15180, March 14, 2012). The FAA also extended
the deadline for written comments on the proposed policy clarifications
until July 6, 2012.
The public meeting was held on June 6, 2012, in Oklahoma City,
Oklahoma. As with the first public meeting, representatives of trade
associations, law firms, aircraft manufacturers, lenders, lessors,
aircraft operators, trustees and others were in attendance. The
proceedings of the meeting were transcribed and the transcript was made
available for purchase from the court reporter to members of the
public.
During the meeting, several participants requested an additional
extension of time to submit written comments on the proposed policy
clarification given the complexity of the issues involved. The FAA
agreed to the request, and published a notice extending the deadline
for comments until August 17, 2012 (77 FR 40310, July 9, 2012). The FAA
received a number of written comments, including those from the AWG.
The FAA considered the information provided at the two public
meetings and the written comments received in response to the April 26,
2011 and February 9, 2012 notices as critical in helping it better
understand the practices and concerns of the aviation industry
regarding the use of non-citizen trusts to register aircraft in the
United States. The FAA also now has a more complete understanding of
how some view the regulatory obligations on an owner trustee when
registering an aircraft in the United States using a non-citizen trust.
Importantly, the FAA also believes that the public meetings helped
members of the public to better understand the critical safety
information that the FAA needs to communicate to aircraft operators,
through owner trustees, and the critical information that the FAA needs
to receive from them in order for the FAA to meet its safety oversight
obligations under U.S. and international law.
Policy Clarification
This policy clarification is consistent with the FAA's regulations.
It is also in accord with the FAA's duties under applicable statutory
and treaty obligations with regard to safety oversight functions,
safety investigations, and safety rulemaking activities (including the
expeditious communication of critical safety rulemaking, e.g.
airworthiness directives).
The FAA has carefully considered the information provided during
the public meetings and in written comments in developing the following
policy clarification on the use of non-citizen trusts to register
aircraft in the United States. The FAA believes this policy
clarification will ensure that the use of non-citizen trusts to
register aircraft is fully consistent with the applicable regulations
and supports the FAA's safety oversight interests with regard to
aircraft on the U.S. registry. The policy clarification will facilitate
the FAA's ability to determine eligibility for registering aircraft to
non-U.S. citizen trusts. The FAA does not expect that this policy
clarification will discourage the use of non-citizen trusts to register
aircraft in the appropriate circumstances.
In presenting this policy clarification, the FAA for the most part
will not repeat the detailed legal analysis that it provided in
outlining its proposed policy clarification in the February 9 notice.
Except as discussed in this Notice, the underlying legal reasons for
the policy clarification outlined in this Notice are substantially the
same as the legal analysis presented in the February 9 notice.
Accompanying this policy clarification is a discussion of the comments
received concerning the policy.
A. Policy Concerning Trustees as Aircraft Owners
As discussed extensively in the February 9 notice, a primary area
of concern for the FAA is whether the trustees of non-citizen trusts
fully understand and are prepared to comply with their regulatory
obligations as owners of aircraft on the U.S. registry. The owners of
U.S.-registered aircraft have a substantial role in the FAA's system
for overseeing the safety of those aircraft and their operation. The
owner's role includes the ability to communicate critical safety
information to the actual operator of an aircraft, assuming (as is the
case in most, if not all, instances) that the trustee in a non-citizen
trust is not the operator of the aircraft. When requested, the owner
also must be able to provide the FAA with information on the aircraft
and its operation.
In the laws and regulations that establish and govern the FAA
Aircraft Registry, no distinction is made between types of aircraft
owners for purposes of regulatory compliance. All registered owners of
aircraft on the FAA Aircraft Registry, whether they are individuals,
partnerships, corporations, or
[[Page 36414]]
associations, any of which may act in the capacity of owner trustees,
have the same obligations to comply with applicable FAA regulations.
Once the FAA completes the registration process, the registered owner
is the owner for all purposes under the regulations.
The FAA does not consider the status of the trustee as the owner of
the aircraft under a trust agreement as having any differing effect on
its responsibilities for regulatory compliance issues compared to other
owners of a U.S.-registered aircraft. The FAA has determined that there
is nothing inherent in the status of a trustee owner of a U.S.-
registered aircraft that would affect or limit its responsibilities for
ensuring compliance with applicable laws and regulations. The FAA is
not aware of any basis for treating one type of owner--such as a
trustee under a non-citizen trust--differently from any other owner of
a civil aircraft on the U.S. registry when considering issues of
regulatory compliance.
Contrary to the suggestion made by some commenters, treating an
owner trustee of an aircraft the same as all other owners of aircraft
on the U.S. registry does not represent a change either in the status
of the owner trustee or in the relationship or responsibilities of
trustee as to an aircraft registered under a non-citizen trust under
FAA regulations. The regulatory obligations of an owner trustee with
regard to an aircraft registered in the U.S. using a non-citizen trust
are, and always have been, the same as the regulatory obligations of
all owners of U.S. registered aircraft.
Some commenters have suggested that a trustee owner can relieve
itself of its regulatory compliance obligations if, in transferring the
aircraft to another party for purposes of operating it, the trustee
includes a contractual requirement that the operator fully comply with
all applicable laws and regulations. The FAA disagrees. No owner of an
aircraft on the U.S. registry can avoid a regulatory obligation imposed
on it by the FAA simply by entering into a private contract with
another party. The FAA in its regulations and policies does not
recognize such a right.
Two commenters--the AWG and Airlines for America (A4A)--expressed
concern about whether treating an owner trustee the same as all other
owners under the FAA's regulations could increase the trustee's tort
liability exposure. The FAA takes no position on this issue other than
to note that in our view, the regulatory obligations of an owner
trustee are not changed or expanded by virtue of this policy
clarification. Analyzing the potential tort liability of any owner of
an aircraft on the U.S. registry is beyond the purview of the FAA and
is not relevant to the discussion of the owner's responsibilities.
The AWG and A4A also raised the issue of whether 49 U.S.C. 44112
\1\ affects the regulatory responsibilities of owner trustees. As the
FAA noted in the February 9 notice, the plain terms of Sec. 44112 only
addresses the tort liability of lessors, owners and secured parties
under certain circumstances. Section 44112 does not distinguish between
types of owners of aircraft with respect to regulatory obligations, nor
does it provide a basis for relieving trustees of the obligation to
comply with the applicable regulations.
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\1\ In its current form, section 44112, entitled ``Limitations
on Liability,'' provides in part that a lessor, owner, or secured
party is liable for personal injury, death, or property loss or
damage on land or water only when a civil aircraft, aircraft engine,
or propeller is in the actual possession or control of the lessor,
owner, or secured party, and the personal injury, death, or property
loss or damage occurs because of the aircraft, engine, or propeller;
or the flight of, or an object falling from, the aircraft, engine,
or propeller.
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Flexjet, a fractional ownership program manager, stated in its
comments that ``the registration of fractional ownership program
aircraft to U.S. citizen trustees in situations involving non-U.S.
citizens and beneficiaries should be exempted from the proposed FAA
policy'' because of the role of the fractional program manager in
receiving notices and the joint liability of the fractional ownership
program manager and owner for regulatory compliance. According to
Flexjet, these considerations either substantially mitigate or
eliminate the FAA's oversight concerns as outlined in the February 9
notice.
The FAA disagrees with the Flexjet position. Without addressing in
this Notice the issue of whether an owner trustee can participate as an
``owner'' in a fractional ownership program under 14 CFR part 91,
subpart K, the FAA's oversight of fractional ownership operations does
include consideration of the role and actions of the owner in such
operations. There is no basis in subpart K for the proposition that the
actions of a fractional ownership program manager could somehow reduce
or eliminate the FAA's oversight concerns as to owners.
B. Information About the Aircraft and Its Operations
As noted above, the FAA by law imposes important safety obligations
on all owners of aircraft. To meet these obligations, an owner must
maintain current information about the identity and whereabouts of the
actual operators of an aircraft and location and nature of the
operation on an ongoing basis, thereby allowing that owner to provide
the operator with safety critical information in a timely manner, and
to obtain information responsive to FAA inquiries, including
investigations of alleged violations of FAA regulations. Such
information is an essential element in the FAA's ability to carry out
its oversight obligations under U.S. and international law. Moreover,
the FAA believes such obligations are not unduly burdensome or beyond
the capabilities of any owner of a U.S.-registered aircraft to meet.
The FAA expects that an owner trustee of aircraft on the U.S.
registry, in carrying out the above-described obligations, normally
should be able to respond to a request by the FAA for the following
information about the aircraft and its operation within two (2)
business days:
The identity of the person normally operating, or managing
the operations of, the aircraft;
Where that person currently resides or has its principal
place of business;
The location of maintenance and other aircraft records;
and
Where the aircraft is normally based and operated.
The FAA further expects that that an owner trustee of aircraft on the
U.S. registry normally should be able to respond within five (5)
business days to a request by the FAA for more detailed information
about the aircraft and its operations, including:
Information about the operator, crew, and aircraft
operations on specific dates;
Maintenance and other aircraft records; and
The current airworthiness status of the aircraft.
In the event of an emergency, the FAA may request a trustee to provide
information more quickly than the timelines noted above.
The timeline guidance of two and five days referenced above is
intended by the FAA to be just that--guidelines. They are not mandatory
timelines by which an owner trustee must, in all cases, respond to an
FAA request for information or face sanctions. The timelines of two and
five days merely represent what the FAA believes are reasonable and
attainable goals for providing specific information to the FAA under
most circumstances. The FAA understands that there may be occasions
where requested information is not readily available, such that the
owner trustee cannot provide it to the FAA within the timelines
described. In
[[Page 36415]]
those cases, however, the FAA would expect that an owner trustee would
be in communication with the FAA about the nature of the delays or
difficulties in obtaining requested information, including information
on actions by the trustee owner to overcome the delays or difficulties.
In a case where an owner trustee is unable to provide much or all of
the information requested by the FAA, or does not diligently attempt to
provide information in a timely manner when requested by FAA, the facts
and circumstances may dictate further action by the FAA.
Several commenters, including AWG, A4A, and Flexjet, argued that in
many instances timely information about an aircraft registered to an
owner trustee would more readily be available from other sources,
including an air carrier or other holder of an air operator certificate
in actual possession of an aircraft or from a fractional ownership
program manager whose program operation includes an aircraft registered
in whole or in part, in the name of an owner trustee. In those cases,
the commenters stated that the FAA would obtain needed information more
efficiently if it went directly to those other sources.
The FAA agrees that for many aircraft on the FAA Aircraft Registry,
including aircraft registered under non-citizen trusts, the FAA may be
able to obtain information about the aircraft and its operations by
directly contacting the operator of the aircraft when that operator is
readily identifiable. Such operators include air carriers and other
holders of air operator certificates. They also may include fractional
ownership program managers. The FAA, which shares the commenters'
interest in efficiency, will in most cases, go directly to the air
carrier or similar operator through FAA personnel (e.g., principal
operations or maintenance inspectors) to obtain information about the
aircraft and its operation. The FAA will, however, always reserve the
right to seek information from the registered owner of an aircraft on
the U.S. registry.
For aircraft registered on behalf of non-U.S. citizens under trusts
that are primarily or exclusively used in general aviation or aerial
works operations outside the United States, the FAA has been less
successful in obtaining information about the aircraft and their
operations. In those cases, the operator is frequently not identifiable
by the FAA, and in any case, the FAA records would not necessarily
contain contact information for those operators that can be identified.
In those cases, the FAA will look to the owner trustee, as the
registered owner of the aircraft, for information about the aircraft
and its operations when needed to meet the FAA's safety oversight
obligations under U.S. and international law.
Comments by the AWG suggest that an owner trustee could meet its
obligations to provide information to the FAA by including clauses in
operating agreements, leases, bailments and other arrangements
requiring operators of a trust-registered aircraft to maintain current
contact information with owner trustee and requiring them to provide
that information to the FAA upon request. AWG further explained that
under this approach, such clauses also would be required elements in
any downstream operating agreement, lease, or other arrangement
pertaining to the aircraft but not involving the owner trustee as a
party. The clauses would address other issues related to the provision
of information requested by the FAA, including: the obligation to
expeditiously provide the information; liability for a failure to
reply; giving the FAA access to inspect the aircraft and its records;
\2\ and required notices to the owner trustee of transfers of control
of the aircraft under an operating agreement, lease, bailment, or other
arrangement.
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\2\ With regard to the inspection of the aircraft and its
regulations, the FAA notes that U.S. laws and regulations provide
the FAA with a right of access to U.S. registered aircraft. A
foreign civil aviation authority has a right under international law
to inspect a U.S.-registered aircraft and its documents when the
aircraft is located in the territory of the country for which the
authority oversees aviation safety. Convention on International
Civil Aviation, Article 16.
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To the extent that these and other contractual mechanisms would be
intended to somehow relieve the owner trustee of an obligation to
provide the FAA with requested information, the FAA does not agree that
this approach represents an acceptable means of complying with the
obligations of an owner to provide information. As noted above, an
owner of an aircraft on the U.S. registry cannot avoid a regulatory
obligation imposed on it by the FAA simply by entering into a private
contract with another party. Moreover, the approach suggested by the
AWG would make the FAA's ability to obtain information subject to the
implementation of contracts to which the FAA is not a party and over
which the FAA would have no standing to enforce. Subordinating the
oversight interests of the FAA to the interests of private parties in
executing a private contract is not acceptable. The FAA needs a more
reliable system of obtaining information in order to meet its safety
oversight interests.
On the other hand, the FAA agrees that the contractual system
described by the AWG may represent a reasonable means by which an owner
trustee can ensure that it is able to satisfy FAA requests for
information about an aircraft that is in the possession of the trustor,
beneficiary, or other downstream operator. There may be other
mechanisms that an owner trustee could utilize to achieve that same
result. Although the FAA will not require an owner trustee to adopt
such specific contractual mechanisms or otherwise specify how the owner
trustee should structure arrangements concerning the possession and use
of the aircraft in order to ensure its ongoing ability to comply with
its regulatory obligations, such contractual mechanisms may be
considered favorably by the FAA.\3\
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\3\ For example, the FAA would view favorably a provision that
requires the owner trustee to approve, or be provided with
information on, all downstream transfers of the aircraft, such that
the trustee has current information on the location and operator of
the aircraft.
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C. Submission of Operating Agreements With a Registration Application
The FAA requires that a person holding legal title to an aircraft
in trust must, when applying to register that aircraft in the United
States, submit a ``copy of each document legally affecting a
relationship under the trust . . .'' 14 CFR 47.7(c)(2)(i). The purpose
of this requirement is to ensure the FAA has access to all documents
relevant to the trust relationship when determining whether a
particular non-citizen trust provides an adequate basis for registering
an aircraft in accordance with FAA regulations. A fundamental part of
the registration process for aircraft held in trust is determining
whether the underlying agreements meet and are not in conflict with the
applicable requirements and therefore are sufficient to establish the
trustee's eligibility to register the aircraft. The failure to submit
required documents such as an operating agreement frustrates this
objective.
During the course of its review of non-citizen trusts, the FAA
reviewed a number of aircraft operating agreements between the trustee
owners of aircraft and the trustors or beneficiaries of the trust.\4\
In its review, the FAA found that many operating agreements contained
clauses that addressed issues not covered in the non-citizen trust
agreement or that modified or contradicted provisions in the trust
agreement, particularly as to enlarging
[[Page 36416]]
the degree of control exercised by a non-U.S. citizen over the trustee.
The ultimate impact of many operating agreements was to affect the
relationship and balance established under the non-citizen trust
between the trustor and/or beneficiary on one hand and the trustee on
the other.
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\4\ The FAA notes that it had previously unfavorably opined on
whether a trustee could enter into operating agreements that
permitted custody and use of the aircraft by the non-U.S. citizen
trustor. FAA now recognizes that such transactions are not uncommon.
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Based on the information considered in the course of its review of
non-citizen trusts, the FAA concludes that a relationship established
under a trust agreement is necessarily affected by an operating
agreement or similar side agreement or arrangement involving trustee
and trustor or beneficiary which allows possession and use of the
aircraft at all times to remain with the trustor and/or beneficiary.
The operating agreement and the trust agreement are so intertwined that
the operating agreement could affect the relationship established under
the trust.
To avoid the result where the FAA does not have access to all
relevant information for use in determining whether a particular non-
citizen trust provides an adequate basis for registering an aircraft in
accordance with FAA regulations, the FAA will require that all
operating agreements or similar side agreements involving the trustee
transferring custody and use of the aircraft held in trust to the
trustor or beneficiary be submitted to the FAA along with other
documents that affect a relationship under the trust pursuant to 14 CFR
47.7(c)(2)(i).
In cases where a non-citizen trust is used to establish eligibility
for registration and no operating agreement or other similar side
agreement or arrangement is submitted along with a registration
application, the FAA will expect the applicant to provide sufficient
assurances that no such operating agreement or other side agreement or
arrangement exists between the trustee and the trustor or beneficiary.
An adequate assurance might take the form of a declaration by the
trustee in an affidavit submitted in support of a non-citizen trust
registration that no such operating agreement or other side agreement
or arrangement has been entered into by the trustee and the trustor or
beneficiary. There may be other means by which the trustee could
adequately assure the FAA that no operating agreement or other side
agreement or arrangement exists between the trustee and the trustor
and/or beneficiary. The FAA will consider alternate approaches. In the
end, however, the FAA must be certain that it has the opportunity to
review all documents that affect the relationship established under a
non-citizen trust in order to insure the integrity of the registration
process. Silence by the trustee with regard to this important issue
will not be sufficient.
The comments received by the FAA on the required submission of
aircraft operating agreements expressed concern over whether the
agreements would be accorded confidential treatment because of the
sensitivity of the information contained therein, and whether the
retention of the agreements in the Registry's files would create a
cloud on the title of the aircraft that would impede its subsequent
sale. The FAA agrees that those concerns are valid. After further
consideration of the issue, the FAA concludes aircraft operating
agreements do not have to be retained as part of a trust registration
application in the files of the FAA Registry.
Accordingly, if an applicant requests the return of an aircraft
operating agreement submitted as part of a trust registration
application at the time the application is submitted, the FAA will
return the agreement to the applicant once its review of the
application package is complete. That review will focus on whether the
aircraft operating agreement affects the relationship established under
the trust in a way that is contrary to the regulations. If the review
establishes that the aircraft operating agreement does not adversely
affect the trust relationship, FAA registry counsel will create a brief
summary of the review that will be retained in the FAA Registry's
ancillary aircraft file and the aircraft operating agreement will be
returned. If the review establishes that the aircraft operating
agreement does adversely affect the trust relationship, the application
may be rejected or the application process suspended until the problem
is corrected by the applicant.
The only exception to the policy of returning operating agreements
will arise in the event that the review of the operating agreement
establishes that the aircraft operating agreement adversely affects the
trust relationship, resulting in the rejection of the registration
application. In those cases, the FAA will retain the operating
agreement for inclusion in the administrative record that the FAA will
need to assemble in the event of any litigation that arises out of the
rejection.
In the event an applicant does not request return of an aircraft
operating agreement at the time a registration application is
submitted, the agreement will be retained in the FAA Registry files.\5\
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\5\ Upon entry of Aircraft Operating Agreements or side
agreements in FAA ancillary files, they will not be removed.
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The FAA notes that there may be circumstances where after return of
an aircraft operating agreement, information contained in the aircraft
operating agreement is needed by the agency. The FAA will expect the
full cooperation of the registered owner in providing such information.
D. Trustee Removal
In order to insure owner trustee independence, in promulgating
regulations to permit the use of a non-citizen trust to establish
eligibility to register an aircraft in the U.S., the FAA has imposed
restrictions on the ability of non-U.S. citizens to remove the trustee.
Such restrictions, in the FAA's view, lend more meaningful status and
permanence to the trustee as the owner of the aircraft held in trust,
thereby ensuring better protection for U.S. interests. Section
47.7(c)(3) of the regulations provides that if persons who are neither
U.S. citizens nor resident aliens have the power to direct or remove a
trustee, either directly or indirectly through the control of another
person, the trust instrument must provide that those persons together
may not have more than 25 percent of the aggregate power to direct or
remove a trustee. Nothing in Sec. 47.7 prevents those persons from
having more than 25 percent of the beneficial interest in the trust.
The limitation on the ability of non-U.S. citizens to remove a trustee
is in addition to what limitations, if any, exist under the laws of the
state in which the trust is established.
In its review of non-citizen trusts, the FAA noted language in
trust agreements and related documents suggesting that non-U.S.
citizens held more than 25 percent of the power to remove or direct a
trustee. To avoid issues of non-compliance with this requirement in the
future, the FAA will review all registration applications that rely on
non-citizen trusts for evidence of clear compliance with the Sec.
47.7(c)(3) limits on non-U.S. citizens power to direct or remove a
trustee. In those cases where a non-U.S. citizen appears to have
greater than 25 percent of the power to direct or remove a trustee
under a trust agreement or related document,\6\ the FAA may request
further information on how and why such non-citizens will not be able
to exercise aggregate power to direct or remove a trustee in excess of
the 25 percent limit. Alternatively, the
[[Page 36417]]
FAA may simply reject an application that is based on a trust agreement
or other documents that provide a non-U.S. citizen with such power.
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\6\ The FAA considers that any trust agreement or related
document that contains a provision designating a foreign court or
body to adjudicate disputes between the trustor and trustee as
violating the Sec. 47.7(c)(3) limits on non-U.S. citizens power to
direct or remove a trustee. Such designations are not acceptable to
the FAA.
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In its comments to the February 9 notice and during the June 6
public hearing, the AWG indicated that strict compliance with the Sec.
47.7(c)(3) limitation on the power of a non-U.S. citizen to direct or
remove the trustee was not possible as a practical matter. It stated
that including U.S. citizens in the process to ensure compliance with
the 25 percent limitation does not address FAA issues with non-citizen
trusts and ``adds a layer of expense and bureaucracy that will be
difficult to bear by transaction parties.'' The AWG also suggested that
an Aeronautical Center Counsel opinion of 2002 was inconsistent with
the 25 percent limitation contained in Sec. 47.7(c)(3) of the FAA's
regulations. The AWG concluded its comments on this issue by suggesting
that the FAA use this policy clarification as a vehicle to indicate
that it would not strictly enforce the plain language of the regulation
moving forward.
The FAA rejects the AWG position on this issue. The language of
Sec. 47.7(c)(3) is plain and unambiguous, and has been a part of the
regulation on non-citizen trusts since it was adopted in 1979. See (44
FR 61937, October 29, 1979). The FAA believes that there are adequate
mechanisms to comply with the Sec. 47.7(c)(3) limitations on non-U.S.
citizen power over trustees, to integrate the costs of those mechanisms
in the overall cost structure of non-citizen trusts, and to otherwise
adjust their business practices to the requirement. For example, the
FAA identified instances of non-citizen trusts filed with the FAA in
the years immediately after the adoption of Sec. 47.7(c)(3) where non-
U.S. citizens had no power to remove a trustee and appropriately
limited power to direct the trustee. Those same arrangements, however,
did give the interested non-U.S. citizens full power to terminate the
non-citizen trust. The FAA sees no reason why a similar mechanism could
not be adopted today, or why other innovative approaches to the issue
could not be developed by the industry.
With regard to the Aeronautical Center Counsel opinion of 2002, the
FAA disagrees that it contains any indication that the FAA would not
enforce the 25 percent limitation on non-U.S. citizen power under Sec.
47.7(c)(3). It is stated in the opinion that ``14 CFR 47.7(c) must
restrict removal rights to situations involving ``cause''.'' Use of
removal for cause provisions in non-citizen trust agreements does not
substitute for compliance with the 25 percent limitation imposed by
regulation. No change to that requirement could be effected through the
2002 opinion or in this policy clarification.\7\
---------------------------------------------------------------------------
\7\ The 25% limitation is based on the language in the
applicable statutes. See 49 U.S.C. 40102(A)(15) and 44102(a)(1)(A).
Such a requirement cannot be altered by regulation. Moreover, at
this time the FAA is not proposing to undertake any rulemaking to
address this issue or any of the other issues associated with the
use of non-citizen trusts to place aircraft on the U.S. registry.
---------------------------------------------------------------------------
With regard to removals for cause, the FAA believes that a non-
citizen trust agreement must describe with some specificity what would
be a sufficient cause for removal of a trustee by a non-U.S. citizen
beneficiary. Non-citizen trust agreements reviewed by the FAA
frequently allow trustees to be removed for cause without specifying
what constitutes a sufficient cause. Notwithstanding any other
limitation on a non-U.S. citizen's power to remove a trustee, the FAA's
view is that such lack of specificity in the removal for cause
provisions gives non-U.S. citizen trustors or beneficiaries virtually
unconditional power to remove a trustee, since practically any cause
for removal might be interpreted as sufficient. Greater specificity in
defining what constitutes sufficient cause will address the FAA's
concerns in this regard. Some trust agreements on file with the FAA
have defined what constitutes cause to remove consistent with the
general law of trusts such as gross negligence and willful misconduct.
As a minimum, FAA will expect such examples of specific causes for
removal. See, e.g., para 3.02, Removal, in the attached proposed Trust
Agreement.\8\
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\8\ The grounds for removal listed in the Third Restatement of
Trusts at Section 37 are illustrative of possible (but not always
relevant) grounds for removing a trustee that might be included in a
non-citizen trust agreement.
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E. Termination of the Trust and Trustee Resignation
None of the restrictions on the power of a non-U.S. citizen to
direct or remove a trustee affect the ability of a non-U.S. citizen
beneficiary or trustor otherwise to terminate a trust in accordance
with its terms. With regard to the registration of the aircraft, the
FAA expects that the likely effect of a termination, not involving
removal of the trustee, would be to end registration or render the
registration ineffective under 14 CFR 47.41(a). The aircraft could be
re-registered in the United States if ownership were transferred to a
person eligible to register it, whether under a non-citizen trust or
some other mechanism recognized under the FAA's regulations.
Likewise, there are no regulatory restrictions on the ability of a
trustee to resign without first being replaced by a successor trustee.
The FAA does not have any regulation or policy that requires the
inclusion of a requirement in the non-citizen trust agreement that a
resignation may take effect only upon the appointment of a successor
trustee. The FAA allows the parties to the non-citizen trust to address
that issue as they see fit. The FAA believes the consequences of a
resignation by a trustee without the prior appointment of an eligible
successor trustee would be the same as a termination of the trust as
described above.
No comments were received on these elements of the FAA policy on
non-citizen trusts.
Changes to a Standard Trust Agreement
The FAA does not require the use of a particular template in
establishing a non-citizen trust. However, the FAA recognizes that the
aviation industry has developed a standard non-citizen trust agreement
over the years. The FAA continues to believe, as it did when issuing
the February 9 notice, that it was useful to offer suggestions to that
document. The FAA attached as an exhibit to the February 9 notice an
example of a standard trust agreement with FAA-suggested changes
incorporated. The FAA also made the revised standard trust agreement
showing the FAA's additions and deletions available on the FAA's Web
site. For the reasons stated in the February 9 notice, the FAA believes
that the revisions made to the standard trust agreement are consistent
with the policy clarification set forth in this Notice.
In comments in response to the February 9 notice, the AWG suggest a
number of additional changes to the revised standard trust agreement
that was attached to the notice. To the extent that the changes
suggested by the AWG are consistent with the policy clarification
described in this Notice, the FAA has incorporated them into the
revised standard trust agreement. Several changes suggested by the AWG
were not consistent with the policy clarification described in this
Notice, and therefore not adopted by the FAA. The revised standard
trust agreement with the incorporated AWG changes is attached to this
Notice as an exhibit. A version of the revised standard trust agreement
that shows in detail which of the AWG changes were accepted by the FAA
and which were rejected is entitled ``Sample NCT Agreement 021012
redline'' and located on the FAA Office
[[Page 36418]]
of Chief Counsel's Web site at the ``Aircraft Registration--Proposed
Policy Clarification'' link at http://www.faa.gov/about/office_org/headquarters_offices/agc.
Non-citizen trusts that follow the attached standard trust
agreement (which includes recommendations from the public) generally
will be acceptable to the FAA as a basis for registering the aircraft
in the U.S. However, applicants who wish to register an aircraft in the
U.S. using a non-citizen trust are not required to use any particular
version of a trust agreement. The FAA will review any non-citizen trust
agreement, any aircraft operating arrangement and other documents
affecting a relationship under the trust, and all other documents
required to be filed along with an application for registration that is
based on a non-citizen trust, to ensure that they are consistent with
U.S. law, the applicable regulations, and the clarified policies set
forth in this Notice.
Issued in Washington DC on June 13, 2013.
Marc L. Warren,
Acting Chief Counsel, Federal Aviation Administration.
EXHIBIT
TRUST AGREEMENT
THIS TRUST AGREEMENT ( ), dated as of , (the ``Agreement'') by and
between , a [corporation organized and existing] [limited liability
company formed] \9\ under the laws of (``Trustor''), and , a organized
and existing under the laws of the (``Owner Trustee'');
---------------------------------------------------------------------------
\9\ Choose the appropriate phrase depending on whether Trustor
is an LLC or a corporation.
---------------------------------------------------------------------------
WITNESSETH:
WHEREAS, Trustor desires to cause title to the Aircraft (as
hereinafter defined) to be conveyed to Owner Trustee;
WHEREAS, Trustor desires to create a trust (the ``Trust'') and
contribute the Aircraft thereto in order to ensure the eligibility of
the Aircraft for United States registration with the Federal Aviation
Administration (the ``FAA'');
WHEREAS, this Agreement is designed to create a Trust in order that
the Owner Trustee may hold title to the Aircraft until such time as
Trustor directs the Owner Trustee to distribute the Aircraft in
accordance with Trustor's written instructions; and
WHEREAS, Owner Trustee is willing to accept the trusts as herein
provided;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, Trustor and Owner Trustee agree as
follows:
ARTICLE 1
DEFINITIONS
Capitalized terms used in this Agreement shall have the respective
meanings assigned thereto below, unless such terms are otherwise
defined herein or the context hereof shall otherwise require. The terms
``hereof'', ``herein'', ``hereunder'' and comparable terms refer to
this Agreement, as amended, modified or supplemented from time to time,
and not to any particular portion hereof. References in this Agreement
to sections, paragraphs and clauses are to sections, paragraphs and
clauses in this Agreement unless otherwise indicated.
``Affidavit'' means the Affidavit of Owner Trustee pursuant to
Section 47.7(c)(2)(iii) of Part 47 of the Federal Aviation Regulations.
``Aircraft'' means the Aircraft, serial number , FAA Registration
Number N together with the engines, bearing manufacturer's serial
numbers and , which are transferred to the Owner Trustee in trust under
this Trust Agreement.
``Aircraft Registration Application'' means AC Form 8050-1 Aircraft
Registration Application by Owner Trustee covering the Aircraft.
``Citizen of the United States'' means ``citizen of the United
States'' as that term is defined in Section 40102(a)(15) of Title 49 of
the United States Code.
``FAA'' means the Federal Aviation Administration of the United
States or any Government Entity succeeding to the functions of such
Federal Aviation Administration.
``FAA Bill of Sale'' means an AC Form 8050-2 Bill of Sale for the
Aircraft from Trustor to Owner Trustee.
``Lessee'' means any counterparty to the Owner Trustee under any
Lease. ``Lease'' means any agreement (including an Operating Agreement)
from time to time entered into by Owner Trustee and Lessee that
transfers the right to possess, use and operate the Aircraft to such
Lessee.
``Operating Agreement'' means any agreement (including a lease)
that transfers the right to possess, use and operate the Aircraft from
Owner Trustee to Trustor. ``Trust Estate'' means all estate, right,
title and interest of Owner Trustee in and to the Aircraft, the Lease,
the Warranty Bill of Sale and the FAA Bill of Sale, including, without
limitation, all amounts of the rentals under any Lease, insurance
proceeds (other than insurance proceeds payable to or for the benefit
of Owner Trustee, for its own account or in its individual capacity, or
Trustor), and requisition, indemnity or other payments of any kind for
or with respect to the Aircraft, (other than amounts owing to Owner
Trustee, for its own account or in its individual capacity, Trustor or
any Lessee of the Aircraft).
``Warranty Bill of Sale'' means a full warranty bill of sale for
the Aircraft, executed by Trustor in favor of Owner Trustee and
specifically referring to each engine installed on the Aircraft.
ARTICLE 2
CREATION OF TRUST
Section 2.01 Transfer of Control. Trustor shall cause title to the
Aircraft to be conveyed to Owner Trustee.
Section 2.02 Acceptance and Declaration of Trust. Owner Trustee
accepts the Trust created hereby, and declares that it will hold the
Trust Estate upon the trusts hereinafter set forth for the use and
benefit of Trustor, in accordance with and subject to all of the terms
and conditions contained in this Agreement, and agrees to perform the
same, including without limitation the actions specified in Section
4.01 hereof, and agrees to receive and disburse all moneys constituting
part of the Trust Estate, all in accordance with the terms hereof.
ARTICLE 3
THE OWNER TRUSTEE
Section 3.01 Status. Owner Trustee hereby represents and warrants
that it is a Citizen of the United States.
Section 3.02 Removal. Owner Trustee may be removed at any time, but
for cause only, by a written instrument or instruments signed by an
authorized person or persons, subject to the regulatory limitation that
non-U.S. citizens not hold more than 25 percent of the aggregate power
to remove a trustee. For purposes of this Section, ``for cause'', may
include willful misconduct or gross negligence, but ``for cause'' will
not include the refusal of Owner Trustee to act or refrain from acting
in a manner that (1) would violate the laws, regulations, court orders,
or lawful directions of a government agency; (2) is outside the scope
of Owner Trustee's authority; (3) is contrary to its obligations under
the Trust Agreement; or (4) is the subject of a mere disagreement
between Owner Trustee and Trustor. Such removal shall take effect
immediately upon the appointment of a successor Owner Trustee pursuant
to Section 3.04, whereupon all powers, rights and obligations of the
removed Owner Trustee under this Agreement (except the rights set forth
in Section 3.08) shall cease and terminate. Without any affirmative
action by Trustor, any
[[Page 36419]]
Owner Trustee shall cease immediately to be an Owner Trustee at such
time as it ceases to be a Citizen of the United States or at such time
as it for any reason is not free from control by Trustor as described
in Article 9, and shall give immediate notice thereof to Trustor. Any
Owner Trustee shall also give Trustor notice of a possible change of
citizenship at the later of (i) 90 days prior to a change in
citizenship and (ii) actual knowledge by Owner Trustee that such a
change in citizenship is probable.
Section 3.03 Resignation. Owner Trustee may resign at any time upon
giving 30 days prior written notice of such resignation to Trustor.
Such resignation shall take effect only upon the appointment of a
successor Owner Trustee pursuant to Section 3.04, Successor Owner
Trustee whereupon all powers, rights and obligations of the resigning
Owner Trustee under this Agreement (except the rights set forth in
Section 3.08, Fees, Compensation) shall cease and terminate.
Section 3.04 Successor Owner Trustee. Promptly upon receipt of a
notice of resignation from the Owner Trustee in accordance with Section
3.03, a successor trustee shall be appointed by a written instrument
signed by a duly authorized officer of Trustor and the successor
trustee shall execute and deliver to the predecessor Owner Trustee an
instrument accepting such appointment. Such successor trustee shall be
a Citizen of the United States and shall assume all powers, rights and
obligations of such Owner Trustee hereunder immediately upon the
resignation of such Owner Trustee becoming effective. Such successor,
concurrently with such appointment, shall file an Affidavit with the
FAA and all other documents then required by law to be filed in
connection therewith. If the Trustor shall not have so appointed a
successor Owner Trustee within 30 days after such resignation or
removal, the Owner Trustee may apply to any court of competent
jurisdiction to appoint a successor Owner Trustee to act until such
time, if any, as a successor or successors shall have been appointed by
the Trustor as above provided. Any successor Owner Trustee so appointed
shall immediately and without further act be superseded by any
successor Owner Trustee appointed by the Trustor as above provided.
Section 3.05 Merger. Any corporation into which Owner Trustee may
be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to
which Owner Trustee shall be a party, or any corporation to which
substantially all the corporate trust business of Owner Trustee may be
transferred, shall, subject to the terms of Section 3.04, be Owner
Trustee without further act.
Section 3.06 Tax Returns. The Owner Trustee shall keep all
appropriate books and records relating to the receipt and disbursement
by it of all monies under this Agreement or any agreement contemplated
hereby. The Trustor will prepare all tax returns required to be filed
with respect to the trust hereby and the Owner Trustee, upon request,
will furnish the Trustor with all such information as may be reasonably
required from the Owner Trustee in connection with the preparation of
such tax returns. The Owner Trustee will execute and file the tax
returns as prepared by the Trustor.
Section 3.07 Vacancies. If any vacancy shall occur in the position
of Owner Trustee for any reason, including, without limitation,
removal, resignation, loss of United States citizenship or the
inability or refusal of such Owner Trustee to act as Owner Trustee, the
vacancy shall be filled in accordance with Section 3.04.
Section 3.08 Fees; Compensation. The Owner Trustee shall receive
from the Trustor as compensation for the Owner Trustee's services
hereunder such fees as may heretofore and from time to time hereafter
be agreed upon by the Owner Trustee and the Trustor and shall be
reimbursed by the Trustor for all reasonable costs and expenses
incurred or made by it in accordance with any of the provisions of this
Agreement. If an event of default under any Lease shall occur, the
Owner Trustee shall be entitled to receive reasonable compensation for
its additional responsibilities, and payment or reimbursement for its
expenses. Owner Trustee shall have a lien on the Trust Estate, prior to
any interest therein of the Trustor, to secure payment of such fees and
expenses.
Section 3.09 No Duties. Owner Trustee shall not have any duty (i)
to see to any insurance on the Aircraft or maintain any such insurance,
(ii) to see to the payment or discharge of any tax, assessment or other
governmental charge or any lien or encumbrance of any kind owing with
respect to, assessed or levied against, the Aircraft (provided,
however, that Owner Trustee shall not create, permit or suffer to exist
any lien or encumbrance on any part of the Aircraft which results from
claims against Owner Trustee unrelated to its capacity as Owner Trustee
hereunder), (iii) to confirm or verify any notices or reports, (iv) to
inspect the Aircraft at any time or ascertain the performance or
observance by either of any Lessee or Trustor of its covenants under
any Lease, or (v) except as set forth herein, to see to any recording
or see to the maintenance of any such recording or filing with the FAA
or other government agency.
Section 3.10 Status of Moneys Received. All moneys received by
Owner Trustee under or pursuant to any provisions of this Agreement
shall constitute trust funds for the purpose for which they are paid or
held, and shall be segregated from any other moneys and deposited by
Owner Trustee under such conditions as may be prescribed or permitted
by law for trust funds.
Section 3.11 Owner Trustee May Rely. Owner Trustee shall not incur
any liability to anyone in acting or refraining from acting upon any
signature, instrument, notice, resolution, request, consent, order,
certificate, report, opinion, bond or other document or paper
reasonably believed by it to be genuine and reasonably believed by it
to be signed by the proper party or parties. As to any fact or matter,
the manner or ascertainment of which is not specifically described
herein, Owner Trustee may for all purposes hereof rely on a
certificate, signed by or on behalf of the party executing such
certificate, as to such fact or matter, and such certificate shall
constitute full protection of Owner Trustee for any action taken or
omitted to be taken by it in good faith in reliance thereon. In the
administration of the Trust, Owner Trustee may, at the reasonable cost
and expense of Trustor, seek advice of counsel, accountants and other
skilled persons to be selected and employed by them, and Owner Trustee
shall not be liable for anything done, suffered or omitted in good
faith by it in accordance with the actions, advice or opinion of any
such counsel, accountants or other skilled persons.
Section 3.12 Owner Trustee Acts as Trustee. In accepting the Trust,
Owner Trustee acts solely as trustee hereunder and not in any
individual capacity (except as otherwise expressly provided in this
Agreement or any Lease), and all persons other than Trustor having any
claim against the Owner Trustee by reason of the transactions
contemplated hereby shall not have any recourse to Owner Trustee in its
individual capacity.
Section 3.13 No Expenses for Owner Trustee. Owner Trustee shall not
have any obligation by virtue of this Agreement to expend or risk any
of its own funds, or to take any action which could, in the reasonable
opinion of Owner Trustee, result in any cost or expense being incurred
by Owner Trustee. Owner Trustee shall not be
[[Page 36420]]
required to take any action or refrain from taking any action under
this Agreement unless it shall have been indemnified by Trustor in a
manner and form satisfactory to Owner Trustee against any liability,
cost or expense (including reasonable attorneys' fees) which may be
incurred in connection therewith. No provisions of this Agreement shall
be deemed to impose any duty on Owner Trustee to take any action if
Owner Trustee shall have been advised by counsel that such action would
expose it to personal liability, is contrary to the terms hereof or is
contrary to law.
Section 3.14 Notice of Event of Default. In the event that a
responsible officer in the Corporate Trust Department of the Owner
Trustee shall have actual knowledge of a default or an event of default
under any Lease, the Owner Trustee shall give or cause to be given
prompt notice of such default or event of default to the Trustor. The
Owner Trustee shall take such action with respect to such default or
event of default as shall be specified in written instructions from the
Trustor. For all purposes of this Agreement and any Lease, in the
absence of actual knowledge of a responsible officer in the Corporate
Trust Department of the Owner Trustee, the Owner Trustee shall not be
deemed to have knowledge of a default or event of default unless
notified in writing by the Trustor.
Section 3.15 Certain Duties and Responsibilities of Owner Trustee.
(a) Owner Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Agreement and in any Lease
or Operating Agreement or as required by law and no implied duties,
covenants or obligations shall be read into this Agreement or any Lease
or Operating Agreement against Owner Trustee. Owner Trustee agrees that
it will deal with the Aircraft or any other part of the Trust Estate in
accordance with the terms of this Agreement and any Lease or Operating
Agreement or as required by law.
(b) Whether or not herein expressly so provided, every provision of
this Trust Agreement [relating to the conduct or] affecting the
liability of or affording protection to Owner Trustee shall be subject
to the provisions of this Section 3.15.
Section 3.16 No Representations or Warranties as to the Aircraft or
Documents. OWNER TRUSTEE MAKES (i) NO REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AS TO THE VALUE, CONDITION, DESIGN, OPERATION,
MERCHANTABILITY OR FITNESS FOR USE OF THE AIRCRAFT OR AS TO THE TITLE
THERETO, OR ANY OTHER REPRESENTATION OR WARRANTY WITH RESPECT TO THE
AIRCRAFT WHATSOEVER, except that , in its individual capacity warrants
that on the date on which the Aircraft is transferred to the Trust
contemplated by this TRUST AGREEMENT, Owner Trustee shall have received
whatever title was conveyed to it, and (ii) no other representations or
warranties are made by the Owner Trustee other than to the extent
expressly made herein by Owner Trustee, except that Owner Trustee
represents and warrants that it has full right, power and authority to
enter into, execute, deliver and perform this Agreement and that this
Agreement constitutes the legal, valid and binding obligation of the
Owner Trustee.
ARTICLE 4
THE TRUST ESTATE
Section 4.01 Authorization and Direction to Owner Trustee. Trustor
hereby authorizes and directs Owner Trustee, not individually but
solely as Owner Trustee hereunder, and Owner Trustee covenants and
agrees:
(a) to execute and deliver each agreement, instrument or document
to which Owner Trustee is a party in the respective forms thereof in
which delivered from time to time by Trustor for execution and delivery
and, subject to the terms hereof, to exercise its rights and perform
its duties under any Lease in accordance with the terms thereof,
including without limitation, accepting title to, and delivery of, the
Aircraft and leasing the Aircraft to any Lessee or, subject to the
provisions of Section 7 hereof, distributing the Aircraft to Trustor
pursuant to the specific written instructions of Trustor;
(b) to effect the registration of the Aircraft with the FAA by duly
executing and filing or causing to be filed with the FAA (i) the
Aircraft Registration Application, (ii) the Affidavit, (iii) the FAA
Bill of Sale, (iv) an executed counterpart of this Agreement, and (v)
any other document or instrument required therefore including any
Operating Agreement, except that the Owner Trustee may request that an
Operating Agreement not be filed with the FAA, but only reviewed and
returned.
(c) to execute and deliver each other document referred to in any
Lease or which Owner Trustee is required to deliver pursuant to any
Lease or this Agreement; and
(d) subject to the terms of this Agreement, to perform the
obligations and duties and exercise the rights of Owner Trustee under
any Lease.
(e) upon request by FAA, and with the cooperation of Trustor, to
provide the FAA with the following information in an expeditious manner
(generally within 2 business days of the request or immediately in an
emergency identified by the FAA): (i) the identity and contact
information (address, phone number, email) of person or entity normally
operating, or maintaining the operations of the aircraft; (ii) where
that person or entity resides or is incorporated and has its principal
place of business; (iii) the location of the aircraft maintenance and
other records; and; (iv) where the aircraft is normally based and
operated.
(f) upon request by FAA, and with the cooperation of Trustor, to
provide the FAA with the following information in an expeditious manner
(generally within 5 business days of the request or immediately in an
emergency identified by the FAA): (i) information about the operator,
crew (names and pilot certificate numbers) and aircraft operations on
specific dates; (ii) information about where the aircraft will be on a
specific date in the future and (iii) maintenance and other aircraft
records.
(g) to immediately forward all applicable FAA airworthiness
directives to the Trustor, Lessee, and Operator, as applicable, by the
most expeditious means available.
(h) to notify the FAA Aircraft Registry by the most expeditious
means available of the trustee's resignation under Section 3.03,
Resignation, or removal under Section 3.02, Removal, or of the
termination of the trust under Section 7.01, Termination Date.
(i) to permit the inspection of the aircraft and/or records by the
FAA or any other duly authorized representatives of the U.S. or of the
government of the country where it is based or operated, when an
appropriate request is made by the FAA or other governmental entity
entitled to inspect the aircraft and/or records.
Section 4.02 Supplier Warranties. Trustor hereby assigns to Owner
Trustee any and all warranties and indemnities of, and other claims
against, any supplier relating to the Aircraft.
Section 4.03 Advances by Trustor. Trustor shall make advances to
Owner Trustee in such amounts and at such times as may be necessary to
permit Owner Trustee to satisfy its obligations under any Lease and
this Trust Agreement.
Section 4.04 Trustor's Duties. Trustor hereby convenants and
agrees:
(a) upon a request by the FAA for information related to the
Aircraft and
[[Page 36421]]
the operation of the Aircraft that the FAA is legally entitled to
receive from an owner or operator of an aircraft, which is issued to
Owner Trustee (and forwarded by Owner Trustee to Trustor), as the case
may be, to provide as expeditiously as reasonably practicable to Owner
Trustee or the FAA, as the case may be, with all such requested
information to the extent that Trustor has such information or actually
receives such information from the operator or from any other source,
including, if applicable, (i) information in relation to the operation,
maintenance, location or base of operation of the Aircraft, and (ii)
contact information of (x) the operator of the Aircraft and (y) any
other person to whom the FAA may look to gather information related to
crew members for the Aircraft, the Aircraft's operations on specific
dates, the location of the Aircraft, and maintenance and other aircraft
records for the Aircraft; Trustor (so long as it is not also the
operator of the Aircraft) shall not be liable or responsible under this
Agreement for any failure by Owner Trustee, the operator or any other
source to provide accurate information requested under this Agreement
whether in a timely manner or at all;
(b) in connection with any transfer of Trustor's beneficial
interest in the Trust (other than a collateral assignment thereof), to
provide Owner Trustee the identity and contact information with respect
to the new Trustor and to update the operator information provided
pursuant to Section 4.04(c) and 4.04(d) to the extent Trustor has such
information or actually receives such information from the operator or
from any other source;
(c) to provide as expeditiously as possible to Owner Trustee, in
response to a request by the Owner Trustee, the identity and contact
information for the operator of the Aircraft under any Lease or
Operating Agreement or bailment agreement entered into from time to
time by Trustor, or any lease, bailment, or other arrangement entered
into from time to time by a third party, whether or not at Trustor's
direction.
(d) to require that any Lease, Operating Agreement, bailment, or
similar arrangement transferring possession and operational control of
the Aircraft provide the following or similar provisions to the same
effect:
(i) that all further transfers of the rights to possession and
operational control of the Aircraft to a transferee must be in writing;
provide the identity and contact information about the transferee; and
the transferee's assurance that if and when the transferee is notified
that the Owner Trustee has made a request, to promptly provide
information related to crewmembers of the Aircraft and the Aircraft's
operations on specific dates, the location of the Aircraft, and the
maintenance and other aircraft records for the Aircraft;
(ii) that each such further transferee or operator (x) shall
provide its reasonable cooperation to Owner Trustee, Trustor and the
FAA in an expeditious manner with respect to any request from the FAA
or other applicable governmental entity for information and access to
records of the Aircraft which it is legally entitled to receive, and
(y) shall authorize the FAA or any other duly authorized air authority
representatives of the U.S. or the government where it is habitually
based or operated, upon any request which the FAA or such other
governmental entity is legally entitled to make under law applicable to
such transferee or operator of the Aircraft, to inspect the Aircraft;
and
(iii) that each such further transferee or operator agrees that the
above-referenced information and inspection requirements would be made
and agreed in all subsequent or downstream leases, operating agreements
and bailment agreements thereby requiring each such subsequent
transferee or operator to provide such contact information in the event
that there has been a transfer of possession and operation to another
party, to update such information when any changes occur, and to
promptly confirm such information at any time upon request by Owner
Trustee or Trustor, to provide its reasonable cooperation to Owner
Trustee, Trustor and the FAA in an expeditious manner with respect to
any request from the FAA or other applicable governmental entity for
information and access to records of the Aircraft which it is legally
entitled to receive made pursuant to existing regulations and policies,
and (z) to authorize the FAA or such other governmental entity to
inspect the Aircraft to the extent that it is legally entitled to make
such request under law applicable to Owner Trustee, Trustor, the
relevant counterparty to any such subsequent or downstream agreement or
the Aircraft.
ARTICLE 5
DISTRIBUTIONS
Section 5.01 Receipts. Except as otherwise provided in this
Agreement, any payment received by Owner Trustee for which provision as
to the application thereof is made in any Lease shall be applied
promptly to the purpose for which such payment shall have been made in
accordance with the terms of such Lease; and any payment received by
Owner Trustee for which no provision as to the application thereof is
made in any Lease or in this Article 5 shall, unless Trustor shall have
otherwise instructed Owner Trustee in writing, be distributed promptly
to Trustor.
Section 5.02 Manner of Making Distributions. Owner Trustee shall
make all distributions to Trustor under this Agreement and any Lease
promptly upon the receipt of proceeds available for distribution, but
shall not be obligated to make any distributions until the funds
therefor have been received by Owner Trustee. All distributions to
Trustor hereunder shall be made to such account and in such manner as
Trustor shall from time to time direct in writing.
ARTICLE 6
INDEMNIFICATION OF OWNER TRUSTEE BY TRUSTOR
Section 6.01 Indemnification Trustor hereby agrees, whether or not
any of the transactions contemplated hereby shall be consummated, to
assume liability for, and does hereby indemnify, protect, save and keep
harmless , in its individual capacity and its successors, assigns,
legal representatives, agents and servants, from and against any and
all liabilities, obligations, losses, damages, penalties, taxes
(excluding any taxes payable by in its individual capacity on or
measured by any compensation received by in its individual capacity for
its services hereunder), claims, actions, suits, costs, expenses or
disbursements (including, without limitation, reasonable ongoing fees
of Owner Trustee and reasonable attorneys' fees and expenses) of any
kind and nature whatsoever which may be imposed on, incurred by or
asserted against in its individual capacity (whether or not also
indemnified against by a Lessee under any Lease or also indemnified
against by any other person) in any way relating to or arising out of
this Agreement or any Lease or the enforcement of any of the terms
hereof or thereof, or in any way relating to or arising out of the
manufacture, purchase, acceptance, nonacceptance, rejection, ownership,
delivery, lease, possession, use, operation, condition, sale, return or
other disposition of the Aircraft (including, without limitation,
latent and other defects, whether or not discoverable, and any claim
for patent, trademark or copyright infringement), or in any way
relating to or arising out of
[[Page 36422]]
the administration of the Trust Estate or the action or inaction of
Owner Trustee or in its individual capacity hereunder, except (a) in
the case of willful misconduct or gross negligence on the part of Owner
Trustee or in its individual capacity in the performance or
nonperformance of its duties hereunder, or (b) those resulting from the
inaccuracy of any express representation or warranty of in its
individual capacity (or from the failure of in its individual capacity
to perform any of its covenants) contained in this Agreement or any
Lease, or (c) in the case of the failure to use ordinary care on the
part of Owner Trustee or in its individual capacity in the disbursement
of funds. The indemnities contained in this Article 6 extend to only in
its individual capacity and shall not be construed as indemnities of
the Trust Estate. The Indemnities contained in this Article 6 shall
survive the termination of this Agreement. In addition, and to secure
the foregoing indemnities, Owner Trustee shall have a lien on the Trust
Estate, which shall be prior to any interest therein of Trustor.
ARTICLE 7
TERMINATION
Section 7.01 Termination Date. The Trust shall terminate without
any notice or other action of Owner Trustee upon the earlier of (a)
such date as may be directed by Trustor and the sale or other final
disposition by the Owner Trustee of all property constituting the Trust
Estate or (b) twenty one years less one day after the earliest
execution of this Trust Agreement by any party hereto.
Section 7.02 Distribution of Trust Estate Upon Termination. Upon
any termination of the Trust pursuant to the provisions of Section 7.01
hereof, Owner Trustee shall convey the Trust Estate to Trustor or its
nominee.
ARTICLE 8
MISCELLANEOUS
Section 8.01 Nature of Title of Trustor. Trustor shall not have
legal title to any part of the Trust Estate. No transfer, by operation
of law or otherwise, of the right, title and interest of Trustor in and
to the Trust Estate or the trusts hereunder, in accordance with the
terms hereof, shall operate to terminate this Agreement or the trusts
hereunder or entitle any successor or transferee of Trustor to an
accounting or to the transfer of it of legal title to any part of the
Trust Estate.
Section 8.02 Power of Owner Trustee to Convey. Any assignment,
sale, transfer or other conveyance by Owner Trustee of the interest of
Owner Trustee in the Aircraft or any part thereof made pursuant to the
terms of this Agreement or any Lease shall bind Trustor and shall be
effective to transfer or convey all right, title and interest of Owner
Trustee and Trustor in and to the Aircraft or such part thereof. No
permitted purchaser or other permitted grantee shall be required to
inquire as to the authorization, necessity, expediency or regularity of
such assignment, sale, transfer or conveyance or as to the application
of any sale or other proceeds with respect thereto by Owner Trustee.
Section 8.03 Trust Agreement for Benefit of Certain Parties Only.
Nothing herein, whether expressed or implied, shall be construed to
give any person other than Owner Trustee and Trustor any legal or
equitable right, remedy or claim under or in respect of this Agreement;
but this Agreement shall be held to be for the sole and exclusive
benefit of Owner Trustee and Trustor.
Section 8.04 Notices. Unless otherwise expressly provided herein,
all notices, instructions, demands and other communications hereunder
shall be in writing and shall be delivered personally or sent by
registered or certified mail, postage prepaid and return receipt
requested, or sent by facsimile transmission, with a confirming copy
sent by air mail, postage prepaid, and the date of personal delivery or
facsimile transmission or 7 business days after the date of mailing
(other than in the case of the mailing of a confirming copy of a
facsimile transmission), as the case may be, shall be the date of such
notice, in each case addressed (i) if to the Owner Trustee, to at its
office at , Attention: and (ii) if to the Trustor, to , Attention: .
Section 8.05 Co-Trustee and Separate Trustees. If at any time it
shall be necessary or prudent in order to conform to any law of any
jurisdiction in which all or any part of the Trust Estate is located,
or Owner Trustee being advised by counsel shall determine that it is so
necessary or prudent in the interest of Trustor or Owner Trustee, or
Owner Trustee shall have been directed to do so by Trustor, Owner
Trustee and Trustor shall execute and deliver an agreement supplemental
hereto and all other instruments and agreements necessary or proper to
constitute another bank or trust company or one or more persons (any
and all of which shall be a Citizen of the United States) approved by
Owner Trustee and Trustor, either to act as co-trustee jointly with
Owner Trustee, or to act as separate trustee hereunder (any such co-
trustee or separate trustee being herein sometimes referred to as
``additional trustee''). In the event Trustor shall not have joined in
the execution of such agreements supplemental hereto within 10 days
after the receipt of a written request from Owner Trustee so to do, or
in case an event of default, as defined in any Lease, shall have
occurred and be continuing, Owner Trustee may act under the foregoing
provisions of this Section 8.05 without the concurrence of Trustor; and
Trustor hereby appoints Owner Trustee its agent and attorney-in-fact to
act for it under the foregoing provisions of this Section 8.05 in
either of such contingencies.
Every additional trustee hereunder shall, to the extent permitted
by law, be appointed and act, and Owner Trustee and its successors
shall act, subject to the following provisions and conditions:
(a) all powers, duties, obligations and rights conferred upon Owner
Trustee in respect of the custody, control and management of moneys,
the Aircraft or documents authorized to be delivered hereunder or under
any Lease shall be exercised solely by Owner Trustee;
(b) all other rights, powers, duties and obligations conferred or
imposed upon Owner Trustee shall be conferred or imposed upon and
exercised or performed by Owner Trustee and such additional trustee
(U.S. citizen) jointly, except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed
(including the holding of title to the Trust Estate) Owner Trustee
shall be incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties and obligations shall be
exercised and performed by such additional trustee;
(c) no power given to, or which it is provided hereby may be
exercised by, any such additional trustee shall be exercised hereunder
by such additional trustee, except jointly with, or with the consent in
writing of, Owner Trustee;
(d) no trustee hereunder shall be personally liable by reason of
any act or omission of any other trustee hereunder;
(e) Trustor, at any time, by an instrument in writing may remove
any such additional trustee. In the event that Trustor shall not have
executed any such instrument within 10 days after the receipt of a
written request from Owner Trustee so to do, Owner Trustee shall have
the power to remove any such additional trustee without the concurrence
of Trustor; and Trustor hereby appoints Owner Trustee its agent and
attorney-in-fact for it in such connection in such contingency; and
[[Page 36423]]
(f) no appointment of, or action by, any additional trustee will
relieve the Owner Trustee of any of its obligations under, or otherwise
affect any of the terms of, this Agreement or any Lease.
Section 8.06 Situs of Trust; Applicable Law. The Trust has been
accepted by Owner Trustee and will be administered in the State of
(State of United States). The validity, construction and enforcement of
this Agreement shall be governed by the laws of the State of (State of
United States) without giving effect to principles of conflict of law.
If any provision of this Agreement shall be invalid or unenforceable,
the remaining provisions hereof shall continue to be fully effective,
provided that such remaining provisions do not increase the obligations
or liabilities of Owner Trustee.
Section 8.07 Amendment. This Agreement may not be amended,
modified, supplemented, or otherwise altered except by an instrument in
writing signed by the parties thereto.
Section 8.08 Successors and Assigns. In accordance with the terms
hereof, this Agreement shall be binding upon and shall inure to the
benefit of, and shall be enforceable by, the parties hereto and their
respective successors and permitted assigns, including any successive
holder of all or any part of Trustor's interest in the Trust Estate.
Section 8.09 Headings. The headings of the Articles and Sections of
this Agreement are inserted for convenience only and shall not affect
the meaning or construction of any of the provisions hereof.
Section 8.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed
to be an original, and such counterparts together shall constitute and
be one and the same instrument.
ARTICLE 9
CERTAIN LIMITATIONS
Section 9.01 Limitations on Control, Exceptions,
(a) Limitation on Control. Notwithstanding any other provision of
this Agreement, but subject to paragraph (b) of this Section 9.01, the
Trustor will have no rights or powers to direct, influence or control
the Owner Trustee in the performance of the Owner Trustee's duties
under this Agreement, including matters involving the ownership and
operation of the Aircraft. The Owner Trustee shall exercise its duties
under this Agreement in connection with matters involving the ownership
and operation of the Aircraft, as the Owner Trustee, in its discretion,
shall deem necessary to protect the interests of the United States,
notwithstanding any countervailing interest of any foreign power which,
or whose citizens, may have a direct or indirect interest in the
Trustor and any such action by the Owner Trustee shall not be
considered malfeasance or in breach of any obligation which the Owner
Trustee might otherwise have to the Trustor; provided, however, that
subject to the foregoing limitations, the Owner Trustee shall exercise
this discretion in all matters arising under the Agreement, including
the ownership and operation of the Aircraft with due regard for the
interests of the Trustor. In exercising any of its rights and duties
under this Agreement in connection with matters which may arise not
relating to the ownership and operation of the Aircraft, the Owner
Trustee shall be permitted to seek the advice of the Trustor before
taking, or refraining from taking, any action with respect thereto. The
Owner Trustee shall notify the Trustor of its exercise of rights and
duties under this Agreement in connection with matters involving the
ownership and operation of the Aircraft.
(b) Certain Exceptions. Subject to the requirements of the
preceding paragraph (a), the Owner Trustee agrees that it will not,
without the prior written consent of the Trustor, sell, mortgage,
pledge or otherwise dispose of the Aircraft or other assets held in the
Trust Estate relating thereto, or amend any Lease or other document
(other than a document over which the Owner Trustee has the absolute
and complete discretion established under Section 9.01(a) Limitation on
Control of this Agreement) or give any consents thereunder except as
otherwise expressly provided for herein.
(c) Purpose. The purpose of this Section 9.01 is to assure that (i)
the Aircraft shall be controlled with respect to such matters as are
described in Section 9.01(a) of this Agreement by a Citizen of the
United States and (ii) the Trustor shall have no power to influence or
control the exercise of the Owner Trustee's authority with respect to
such matters and (iii) Owner Trustee shall be able to give the
affidavit required by Section 47.7 (c) (2) (iii) of the Federal
Aviation Regulations, Section 9.01 shall be construed in furtherance of
the foregoing purpose.
Section 9.02 General. Notwithstanding anything to the contrary in
this Agreement, the Owner Trustee and the Trustor hereby agree as
follows:
If persons who are neither U.S. citizens or resident aliens have
the power to direct or remove the Owner Trustee, either directly or
indirectly through the control of another person, those persons
together shall not have more than twenty five (25%) percent of the
aggregate power to direct or remove the Owner Trustee.
Section 9.03 Priority. In creating and accepting the Trust, Trustor
and Owner Trustee each acknowledges that in case of conflict, the
limitations in Article 9 of this Agreement are paramount and superior
to any other terms and conditions in this Agreement; or in any other
document or documents including without limitation, under a Lease or an
Operating Agreement to which Trustor and Owner Trustee are a party in
respect of the Trust.
ARTICLE 10
COMPLIANCE WITH LAWS
Section 10.1 Covenant to Comply with Export Restrictions and U.S.
Laws. Trustor acknowledges that the Aircraft may be subject to
restrictions involving the export and re-export of the same pursuant to
the laws and regulations of the United States, that the laws and
regulations of the United States restrict the transfer of any interest
in the Aircraft to certain persons (collectively, the ``Export
Restrictions'') and that such Export Restrictions may apply to the
Aircraft even after the Aircraft has been physically removed or
transferred from the United States. Trustor also acknowledges that the
Owner Trustee, as a U.S. regulated financial institution, is subject to
the laws and regulations of the United States, including, without
limitation, those promulgated by the U.S. Department of Treasury's
Office of Foreign Assets Control (OFAC) and the Financial Crimes
Enforcement Network (FinCEN) (collectively, the ``U.S. Laws''). Trustor
agrees that it will comply with, and will not knowingly permit the
Aircraft to be used in a manner that is contrary to, Export
Restrictions and U.S. Laws applicable to (1) the Trustor; (2) the Owner
Trustee; or (3) the Aircraft, including the acquisition, possession,
operation, use, maintenance, leasing, subleasing, or other transfer or
disposition thereof.
Section 10.2 Approval of Transfer. Trustor agrees that it will not
permit the assignment of this Agreement, any transfer of the beneficial
interest of the Trustor created by this Agreement, or a lease or
sublease of the Aircraft (collectively, a ``Transfer'') without Owner
Trustee's prior written approval of such Transfer. Owner Trustee shall
not unreasonably delay its decision on a request for approval from
Trustor nor shall it unreasonably withhold its approval to such
request. To facilitate
[[Page 36424]]
Owner Trustee's evaluation of the Transfer, Trustor agrees that it will
use reasonable efforts to provide Owner Trustee with any information
reasonably requested by the Owner Trustee regarding the Transfer, the
proposed transferee and/or the ownership of the proposed transferee.
Owner Trustee's decision to approve or disapprove the proposed Transfer
shall not be deemed to have been unreasonably delayed if Owner Trustee
has not obtained the information it needs to make the decision, and
Owner Trustee's approval of the proposed Transfer shall not be deemed
to have been unreasonably withheld if Owner Trustee has determined that
the Transfer will or may reasonably be expected to put Owner Trustee at
risk of violating any laws or regulations applicable to Owner Trustee
including, without limitation, the Export Restrictions and/or U.S.
Laws. If Owner Trustee withholds approval of a Transfer as set forth
herein, then: (i) subject to the terms of this Agreement, Owner Trustee
may resign; and (ii) Owner Trustee shall have no obligation to consent
to or facilitate a Transfer while Owner Trustee's resignation is
pending.
IN WITNESS WHEREOF, Owner Trustee and Trustor have caused this
Agreement to be duly executed all as of the date first above written.
TRUSTOR:
By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
OWNER TRUSTEE:---------------------------------------------------------
By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
[FR Doc. 2013-14434 Filed 6-17-13; 8:45 am]
BILLING CODE 4910-13-P