FAA, DOT at Odds Over Revised Guidance for Aircraft Held in Non-Citizen Trusts

Feb. 10, 2014

A recent memo issued by the Office of Inspector General at the Department of Transportation (DOT IG) outlined several misgivings about guidance issued by the FAA last year regarding oversight of aircraft held by non-citizen trusts (NCTs).

Registering an aircraft through an NCT allows owners to register on the United States aircraft registry under an N-number, even if they are not a U.S. citizen or legal resident, through use of a U.S. citizen trustee. NCTs are employed for a variety of legitimate purposes, including as part of the finance or loan transaction in order to have the foreign-owned aircraft inspected and maintained under FAA regulations, or by a U.S. publicly traded company that could flip back and forth between meeting the requirements as a U.S. citizen, or a foreign company, based on who purchased stock on any given day.

Citing concerns that NCTs jeopardized its oversight authority over N-registered aircraft, the FAA issued a moratorium on use of NCTs in May 2010. That ban was subsequently relaxed following immediate outcry from aviation groups, including NBAA. In June 2013, a policy revision provided additional leeway to the amount of time available for trustees to respond to certain FAA requests for ownership and safety compliance information.

While those changes were largely welcomed by aviation stakeholders, the DOT IG’s office asserted in its Jan. 31 memo that an investigation into trust-held aircraft on the FAA Aircraft Registry revealed the policy fails to provide the agency with important registration information regarding trust-held, N-numbered aircraft.

“We have determined that FAA does not have the information it needs on numerous aircraft owned under non-U.S. citizen trusts, or that this information may not be readily available,” reads the memo from Louis King, assistant inspector general for financial and information technology audits at DOT. “Without collecting and maintaining complete and accurate aircraft data, FAA increases the risk of not meeting its aviation safety mission.”

The DOT IG also questioned the agency’s stance on grandfathering aircraft registered under existing NCT guidelines, and applying the revised reporting guidance only to new or amended registrations. To require all NCT-held aircraft to comply with the new guidance would “represent a lot of unnecessary time and expense,” noted Mike Nichols, NBAA vice president, operational excellence and professional development.

“There’s no compelling reason to pursue that route when aircraft registered under the prior NCT process regularly filter out of the system, ” he added.

At the recently concluded 2014 NBAA Business Aircraft Finance, Registration & Legal Conference, FAA deputy chief counsel Marc Warren told attendees the agency has “a fundamental difference” in opinion with the DOT IG on the matter of NCTs.