[Federal Register Volume 77, Number 27 (Thursday, February 9, 2012)]
[Proposed Rules]
[Pages 6694-6704]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-2930]
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DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Chapter I
[Docket No. FAA-2011-0012]
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
AGENCY: Federal Aviation Administration, DOT.
ACTION: Notice of Proposed FAA Policy.
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SUMMARY: Notice is hereby given of the FAA's proposed policy regarding
the registration of aircraft to U.S. Citizen Trustees in situations
involving Non-U.S. citizen trustors and beneficiaries.
DATES: Written public comments regarding this FAA proposed policy
should be submitted by March 31, 2012, via email to
ladeana.peden@faa.gov.
FOR FURTHER INFORMATION CONTACT: LaDeana Peden at 405-954-3296, Office
of Aeronautical Center Counsel, Federal Aviation Administration.
SUPPLEMENTARY INFORMATION: 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 because of concerns that some of those arrangements
may not have complied with FAA requirements for non-citizen trusts.
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.
See 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 ``ownership'' registry. It is not an ``operator'' registry.
The FAA met with interested members of the public on June 1, 2011,
in Oklahoma City. Representatives of trade associations, law firms,
aircraft manufacturers, lenders, lessors, aircraft operators, trustees
and others were present. The proceedings of that meeting were
transcribed. The transcript is available for members of the public to
read. Copies of the transcript (File No. A505180) may be purchased
through Atkinson-Baker, Inc., Court Reporters, via email at
abi@depo.com or by contacting Customer Service at 800-288-3376.
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) 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. That organization also participated at the public meeting on
June 1, 2011, and submitted additional written comments on June 30,
2011.
The discussion at the public meeting and the written comments
received by the FAA have helped it to better understand the practices
and concerns of the aviation industry with regard to the use of non-
citizen trusts to register aircraft in the United States. In addition,
the FAA gained a better understanding of the perceptions that exist
with regard to the regulatory obligations on a trustee with regard to
it registering an aircraft in the United States using a non-citizen
trust. The FAA's improved understanding has allowed it to sharpen the
focus of its review of non-citizen trusts. The FAA also believes that
the public meeting was useful in helping 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
international and U.S. law.
The FAA will discuss the issues in terms of the law and safety
since the two are greatly intertwined. International law and U.S. law
impose safety oversight responsibilities on the FAA, existing law
restricts aircraft registration in the U.S. to ``owners,'' and existing
law imposes certain safety requirements on aircraft owners. After the
FAA discusses the legal issues, the FAA will suggest which provisions
in trust agreements may need to be changed and it will suggest language
that would enable the FAA to facilitate the registration of aircraft in
the future that are owned in trust. The suggested language and the
reasons for the suggested language, if adopted as the FAA's final
policy on this matter, will guide the FAA in the future in determining
eligibility for registering non-U.S. citizen trusts. An example of a
standard trust agreement with FAA-
[[Page 6695]]
suggested changes incorporated is attached at the end of this Notice.
State of Registry Responsibilities
Whenever an aircraft is registered in a country, that country
becomes the State of Registry for that aircraft. Under U.S. law, the
FAA has responsibility for the oversight of civil aircraft of the
United States.
Under international law, a State of Registry has numerous
responsibilities with regard to each aircraft on its registry. A number
of these responsibilities, which are set forth in the Convention on
International Civil Aviation (the Chicago Convention) and its annexes,
relate to how a State registers an aircraft and manages its aircraft
registry. Included among these responsibilities is the obligation to
provide information on the registration and ownership of aircraft on
its registry when requested by another contracting State or by the
International Civil Aviation Organization.
Other responsibilities under the Chicago Convention relate to the
regulation and oversight of the safety of the aircraft and its
operations. The State of Registry of an aircraft is responsible for
issuing certificates of competency and licenses for the crewmembers of
those aircraft and issuing a certificate of airworthiness to each
aircraft on its registry. The State of Registry also is responsible for
overseeing the continuing airworthiness of each aircraft on its
registry. Because the Chicago Convention provides for the registration
of an aircraft in only one State at any given time, there can only be a
single set of requirements for the airworthiness certification of a
particular aircraft or for the licensing of an individual crewmember of
that aircraft. Those requirements apply regardless of where the
operator is incorporated or resides or the location of the operation.
With regard to the operation of aircraft, each contracting State to
the Chicago Convention must require that every aircraft on its
registry, when operated outside the territory of that State, comply
with the rules and regulations relating to the flight and maneuver of
aircraft there in force. Over international waters, the rules for the
flight and maneuver of aircraft are set forth in Annex 2 to the Chicago
Convention. (The FAA has incorporated these particular international
requirements in Sections 91.703(a)(2) and Section 91.703(a)(3) of Title
14, Code of Federal Regulations.) Each contracting State also has
undertaken to insure the prosecution of all persons violating the
applicable rules for the flight and maneuver of aircraft. In order to
execute its responsibilities as to compliance with, and enforcement of,
flight and maneuver rules, the State of Registry must be able to obtain
information about particular aircraft and operations in a timely manner
and, in some cases, provide that information to other States.
Depending on the circumstances, the State of Registry also may be
the State of the Operator of an aircraft if the operator's principal
place of business is located in the State of Registry or, if there is
no such place of business, the operator permanently resides in the
State of Registry. The State of the Operator must oversee the operators
of aircraft for which it is responsible in accordance with the
standards set forth in Annex 6 to the Chicago Convention. Where the
State of Registry and the State of the Operator are one and the same,
the execution of safety oversight responsibilities is seamless because
it occurs under a single regulatory system. However, the certification
and oversight responsibilities of the State of the Operator are made
more complicated when an operator uses an aircraft registered in
another State. In those cases, the State of the Operator must consider
and act consistently with certain State of Registry requirements--
particularly with regard to the performance, equipage, and maintenance
of the aircraft--when certifying and overseeing the operator. The
effective execution of these responsibilities requires an ongoing
exchange of information between the State of Registry and the State of
the Operator.
In the course of its review of the use of non-citizen trusts to
register aircraft, the FAA determined that the basing and operation of
such aircraft outside the United States frequently gives rise to
problems in the execution of the oversight responsibilities. The FAA's
ability to carry out its State of Registry responsibilities for those
aircraft is hampered by the fact that it has little or no presence in
most foreign locations where the operations occur, and little or no
information about the identity of the operators or the nature of the
operations being conducted. Moreover, the United States is not the
State of the Operator in many of those situations, inasmuch as the
operators for the most part do not maintain their principal place of
business or reside in the United States. The FAA's lack of information
about the identity of the operators or the nature of the operations
substantially diminishes the FAA's ability to provide information to
the State that is either responsible for the oversight of the operator
or the State where a flight operation actually occurs.
Aircraft Owner Responsibilities
1. Regulatory Obligations of the Owners of U.S.-Registered Aircraft
Generally
In the laws and regulations that establish and govern the FAA
Aircraft Registry of the United States, no distinction is made between
types or categories 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
associations, any of which may act in the capacity of owner trustees,
have the same obligations when it comes to compliance with the
applicable FAA regulations. Once the FAA completes the registration
process, the person to whom the aircraft is registered is the owner for
all purposes under the regulations whether or not it acts as owner
trustee.
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. For example, the regulations specify that the application
for an airworthiness certificate must be submitted by the owner of the
aircraft. 14 CFR 21.173. The regulations also impose certain
maintenance responsibilities on owners of aircraft as well as the
actual operators of the aircraft. 14 CFR 91.403(a) and 91.405.
The importance of the owner's role in the FAA's safety oversight
system may be best illustrated by Airworthiness Directive (AD) process.
In situations involving unsafe conditions or defects in an aircraft
type, the FAA issues ADs--frequently on an emergency basis--to the
registered owners of such aircraft. Sometimes in the interests of
safety, those ADs, which are mandatory rules, require the grounding of
the aircraft while critical airworthiness inspections are conducted or
while important repairs or alterations are made to the aircraft. The
FAA requires aircraft owners to comply with the requirements of an AD.
All owners, including owner trustees, must be able to communicate
critical safety information in an AD in a timely manner to those who
can take appropriate action.
2. Treating an Owner as the Operator of an Aircraft in Certain
Circumstances
The FAA may also communicate with the registered owner of aircraft
when conducting an investigation about suspected operational or
maintenance violations in situations where the identity of the pilot or
operator of the aircraft is not readily apparent. Where a registered
owner has caused or
[[Page 6696]]
authorized another person to operate his aircraft and where the owner
has not cooperated with the FAA in providing information about such
operation, the FAA has taken enforcement action against the owner as an
``operator'' using the broadly defined term ``operate'' in part 1 of
the Federal Aviation Regulations.\1\ In In the Matter of Fenner, FAA
Order No. 96-17 (May 3, 1996) aff'd, Fenner v. FAA, 113 F.3d 1251 (11th
Cir. 1997), the registered aircraft owner personally knew who had
operated his aircraft dangerously, but refused to provide that person's
name to the FAA. The FAA Administrator used the long-standing, broad
definition of ``operate'' to find that the owner, by authorizing the
use of the aircraft was responsible for the operation of the aircraft.
The owner was assessed a $4000 civil penalty for the operation of the
aircraft.
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\1\ Operate, with respect to aircraft, means use, cause to use
or authorize to use aircraft, for the purpose (except as provided in
Sec. 91.13) of air navigation including the piloting of aircraft,
with or without the right of legal control (as owner, lessee, or
otherwise).
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In Fenner, the FAA Administrator held that: ``While aircraft owners
might not be held liable for all infractions committed in their
aircraft, they can be held liable for infractions committed by a pilot
who had permission to use their aircraft. The FAA has the statutory
duty to protect the public from dangerous actions. Moreover, holding
aircraft owners responsible in cases like this may help ensure that
aircraft owners grant permission to use their aircraft only to persons
they know to be responsible.'' Fenner, at p. 3
In a letter to Edward M. Plaza from Assistant Chief Counsel for
Regulations and Enforcement Carl B. Schellenberg, March 28, 1979, the
FAA stated that a lessor could be considered to have operated an
aircraft and be considered in violation of [now section 91.13] when the
lessee flew the aircraft in a careless or reckless manner.) (FAA
Interpretation No. 1979-11)
In In the Matter of Gatewood, FAA Order No. 2001-1, (February 3,
2000), an aircraft owner was found to have ``operated'' an unairworthy
aircraft where an inexperienced mechanic made an erroneous
airworthiness finding and the mechanic/pilot flew the aircraft.
In most circumstances the FAA will prefer to focus on the actual
operator of an aircraft when conducting an investigation or taking
enforcement action. However, an aircraft owner is expected to cooperate
fully in providing information in support of the FAA's investigatory
and enforcement efforts.
3. Owners' Regulatory Compliance Obligations
In reviewing the issues surrounding the use of trusts to register
aircraft, the FAA has focused attention on the role of the owner
trustee of a U.S.-registered aircraft in ensuring compliance with the
laws and regulations that relate to the operation of the aircraft. In
particular, the FAA has considered whether the status of the trustee as
the owner of the aircraft under a trust agreement affects its
responsibilities for compliance issues related to the operation of the
aircraft as compared to other owners of a U.S.-registered aircraft.
After considering the comments submitted by the public, 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 the laws and regulations
that relate to the operation of the aircraft. 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.
Several commenters indicated that a trustee could 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 commenter cited
any legal authority in support of the proposition that a private party
could somehow 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.
The FAA also disagrees with the suggestion that 49 U.S.C. 44112
provides a basis for relieving owners of aircraft of their regulatory
obligations. In its current form, section 44112, entitled ``Limitations
on Liability,'' provides in part:
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
(1) The aircraft, engine, or propeller; or
(2) The flight of, or an object falling from, the aircraft,
engine, or propeller.
The plain language of the statute makes clear that the intent is to
protect lessors, owners, or secured parties from tort liability when
they are not in actual possession or control of the aircraft. The
legislative history indicates that the liability protection provided
under section 44112 was necessary to encourage participation in the
financing of aircraft purchases. H.R. Rpt. 802091, at 1-2 (Jun. 1,
1948). There is no indication, however, in either the language of the
statute or the legislative history that the drafters of the provision
meant to provide broader protection to lessors, owners, or secured
parties by exempting them from regulatory compliance.
4. Due Diligence Reviews of Non-U.S. Citizen Trustors and Beneficiaries
Some of the commenters stated that, presently, most U.S. citizen
owner trustees exercise due diligence when investigating the background
of foreign trustors and beneficiaries before those U.S. citizen
trustees enter into trust relationships or any other type of
relationship with such non-U.S. citizens. As those commenters
explained, those U.S. citizen trustees are endeavoring ``* * * to
protect the interests of the United States * * *'', and do so by, among
other things, exercising due diligence pursuant to the USA Patriot Act,
the Department of Commerce export control regulations, and the Office
of Foreign Asset Control economic sanction regulations.
The FAA acknowledges that the due-diligence reviews described by
the commenters are important for purposes of protecting the interests
of the U.S. as to issues of national security, export control, and
economic sanctions. Those reviews do not, however, necessarily meet the
needs of the FAA with regard to protecting U.S. interests concerning
aviation safety inasmuch as they do not consider the technical aviation
issues that drive a safety oversight system. The FAA is concerned with
technical qualification and the ability to comply on an ongoing basis
with technical, operating, and maintenance standards. Such issues are
outside the scope of the due-diligence reviews for national security,
export control, and economic sanction compliance purposes.
As indicated in the foregoing discussion, the FAA by regulation and
practice imposes important safety obligations on all owners of
aircraft. These obligations require that the information about the
identity and whereabouts of the actual operators of aircraft and
location and nature of operation be updated on an ongoing basis,
thereby allowing owners to provide operators with safety critical
information in a timely manner, and to obtain information responsive to
FAA inquiries, including investigations of
[[Page 6697]]
alleged violations of FAA regulations. The FAA expects this level of
due diligence from owners with regard to issues concerning aviation
safety oversight. 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.
Some commenters have suggested however that the FAA should not
expect that U.S. owner trustee be able to identify the operator or be
able to insure quick contact with the operator of the aircraft. We
reject these suggestions. To accept such suggestions would result in
the removal of existing obligations on U.S. citizen owner trustees that
would otherwise continue to exist for all other owners.
5. FAA Policy Clarification: Information Requirements
For the majority of the aircraft on the FAA Aircraft Registry,
including some aircraft registered to non-U.S. citizens under trusts,
the FAA has adequate sources of information about the aircraft and
their operations to effectively and efficiently carry out its State of
Registry responsibilities under international law. However, for
aircraft registered to 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 accessing information necessary to the execution of its State of
Registry responsibilities. In all cases, the FAA will look to the
trustee, as the registered owner of the aircraft, for information about
the aircraft and its operations when needed to comply with the United
States' State of Registry obligations under the Chicago Convention. In
particular, the FAA expects that within 2 business days a trustee will
be able to provide to the FAA the following information about the
aircraft and its operation:
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 within 5 business days the trustee, as
the registered owner of the aircraft, will be able to respond to FAA
requests 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 specified above.
Policy Clarifications Related to Non-Citizen Trusts and the
Registration Process
1. Operating Agreements Between the Trustee Owner and the Trustor or
Beneficiary
During the course of its review of non-citizen trusts, the FAA has
had an opportunity to review a number of aircraft operating agreements
between the trustee owners of aircraft and the trustors or
beneficiaries of the trust.\2\ The operating agreements reviewed had
not been submitted to the FAA along with aircraft registration
application and other required documents of the aircraft concerned.\3\
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\2\ The FAA also 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-US citizen
trustor. FAA now recognizes that such transactions are not uncommon.
\3\ Pursuant to 14 CFR 47.7(c), in addition to the aircraft
registration application and evidence of ownership, other required
documents include a trust agreement and trustee affidavit of
citizenship.
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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 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.
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 fact
that the operating agreements referenced above have not been routinely
submitted to the FAA in conjunction with an application to register an
aircraft held in trust troubles the FAA because of the effect of the
operating agreements on the relationship established under the trust.
The FAA concludes, contrary to the views of some commenters, 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 which allows possession and
use of the aircraft at all times to remain with the trustor. The
operating agreement and the trust agreement are so intertwined that the
operating agreement will always affect the relationship established
under the trust.
A fundamental part of the registration process for aircraft held in
trust is determining whether the underlying agreements meet 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. To avoid this result in the future, 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 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. An adequate
assurance might take the form of an additional 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
and/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.
2. Trustee Removal or Resignation
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 imposed restrictions on
[[Page 6698]]
the ability of non-U.S. citizens or resident aliens 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.'' Section 47.7(c)(3) of the regulations provides:
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 this paragraph 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 or resident aliens
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.
a. Removal for Cause--Specificity
The FAA is concerned that non-citizen trusts being used to
establish eligibility to register an aircraft do not adequately limit
the ability of non-U.S. citizens to remove a trustee. In general, the
agreements allow trustees to be removed for cause without specifying
what constitutes a sufficient cause. The FAA's view is that such lack
of specificity appears to provide a non-U.S. citizen beneficiary with
virtually unconditional power to remove a trustee, since practically
any cause for removal might be interpreted as sufficient.
Therefore, the FAA believes that a non-citizen trust agreement must
describe with specificity what would be a sufficient cause for removal
of a trustee by a non-U.S. citizen beneficiary. Some trust agreements
on file with the FAA have loosely attempted to define what constitutes
cause to remove consistent with the general law of trusts. 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.
b. Removal for Cause--Aggregate Power
Section 47.7(c)(3) of the Federal Aviation Regulations provides
that non-U.S. citizens or non-resident aliens may not have more than
25% of the aggregate power to direct or remove a trustee. In those
cases where a non-citizen trustor appears to have 100% of such power
(not just 25%), the FAA needs to be assured in writing (in the trust
agreement, trust affidavit of citizenship, or elsewhere) how and why it
is that such non-citizens will not be able to exercise such aggregate
power in excess of 25%.\4\
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\4\ In a related vein, the FAA notes that some trust agreements
contain a provision designating a foreign court to adjudicate
disputes between the trustor and trustee. Such designations are not
acceptable to the FAA.
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In summary, the FAA believes that without a description of the
causes that might justify removal, and without the power to remove by
non-U.S. citizen or non-resident aliens being clearly limited to 25% of
the aggregate power, that a clause that simply vests a non-U.S. citizen
trustor with the power to remove a trustee for cause is insufficient.
c. Termination of the Trust and Trustee Resignation
Finally, the FAA would note that none of the restrictions on the
power of non-U.S. citizen to control 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, the FAA does not have any restrictions on the ability of
a trustee to resign without first being replaced by a successor
trustee. Contrary to the suggestion of at least one commenter, 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.
3. Proposed Changes to a Standard Trust Agreement
A standard non-citizen trust agreement has developed over the
years. The FAA believes it is useful to offer suggestions to that
document.\5\ In some instances we recommend striking language that we
believe is ambiguous or perhaps contrary to law. We also suggest some
new language that we believe might be included in trust agreements
(e.g., in paragraph 3.02, illustrative language has been added
regarding for cause removal). That language reflects what the FAA might
deem acceptable for aircraft registration purposes and that the owner
trustee applicant is making a bona fide effort to comply with existing
legal requirements imposed on all aircraft owners. Below is a
discussion of significant suggested revisions to a standard trust
agreement.
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\5\ Attached as Exhibit 1 is an example of a standard trust
agreement with FAA-suggested changes incorporated. The revised
standard trust agreement showing the FAA's additions and deletions
also is available on the FAA's Web site.
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a. Specification of Owner Trustee's Duties in the Non-Citizen Trust
Agreement Should Reflect Aspects of Duties Imposed by the FAA on Owners
and Should Reflect That the Owner Trustee May Need To Rely on the
Assistance of the Trustor and/or Beneficiary To Meet Those Duties
We propose new paragraphs (e) and (f) to Section 4.01 of the
standard trust agreement. As discussed earlier in this document,
foreign civil aviation authorities and others come to the FAA with
information that a U.S.-registered aircraft may have conducted an
unsafe operation or that it is presently in an unairworthy condition.
Trustee aircraft owners, just like non-trustee aircraft owners, must be
able to provide the FAA with information about who normally operates
and maintains the aircraft.\6\ We feel that 2 business days is enough
time for the trustee, with the cooperation of the trustor, to provide
the FAA with information about those who normally operate the aircraft
and about the usual location of aircraft maintenance records and other
records. We also believe that it is reasonable to expect that within 5
business days of an FAA request, that a trustee, with the cooperation
of the trustor should be able
[[Page 6699]]
to provide the FAA with: (i) Information about the actual operator,
crew, and aircraft operations for specified dates; (ii) information
about where the aircraft will be on specified dates in order for the
FAA to conduct direct oversight inspections and investigations
regarding the condition of the aircraft or the manner in which the
aircraft is being operated; and (iii) maintenance and other records in
order to identify the current airworthiness status of the aircraft, who
performed maintenance on the aircraft, and the manner and methods used
to perform that maintenance.
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\6\ Some have suggested that the FAA impose a new requirement on
the various and potentially vast number of operators of these trust
aircraft. The suggestion has been made that FAA require those that
actually operate the aircraft under a lease or other arrangement
whereby they get possession, control and use of the aircraft, submit
reports to Flight Standards District Offices (FSDO) identifying
themselves as the operators of the aircraft. The suggestion is that
the FAA apply the operator-reporting provisions found in a long-
standing exemption issued to the NBAA in 1972. See Exemption 1637.
Adoption of a similar exemption would have the effect of not
requiring an owner trustee to be the conduit for important
communications to the operator/users of the aircraft or the conduit
or provider of important information and documents about the past or
current condition and use of the aircraft to the FAA. In terms of
conveying important safety information or in terms of gathering
important safety information and evidence, FAA believes trustee
owners should be treated just like any other registered aircraft
owners.
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We note that proposed new paragraphs (e) and (f) includes language
to address emergency situations identified by the FAA. If an emergency
arises, the FAA may issue an emergency order to the owner trustee
requiring the production of information and documents in a shorter time
frame. In an emergency situation, the nonemergency time frames
specified in draft paragraphs (e) and (f) would not apply.
We are proposing a new paragraph (g) to Section 4.01 of the trust
agreement in order for the parties to recognize that it is the owner
trustee's duty to expeditiously communicate emergency airworthiness
directives concerning the aircraft to the Trustor and/or Lessee of the
aircraft. Again, the FAA through the appropriate Aircraft Certification
Office uses the information about aircraft owners, which is listed in
the FAA Aircraft Registry, to communicate time-critical safety
requirements and restrictions to aircraft owners, who under the
regulations are primarily responsible for the airworthiness of the
aircraft. See Sec. 91.403. Similarly, a situation could develop where
the FAA may already have sufficient evidence about an aircraft's
condition or misuse to warrant the issuance of a Cease and Desist Order
or some other type of order immediately grounding the aircraft.
In regard to draft paragraph (h), the United States has an interest
in being informed by the most expeditious means possible of the
resignation of a trustee or the ``for cause'' removal of a trustee.
Among other things, the agency needs that information in order to
determine whether to de-register the aircraft.
b. Proposed Revisions to Article 9 of the Trust Agreement
Much of the language in the existing Article 9 is ambiguous or
problematic. For example, subsection 9.01(a) beginning at line 2
states:
``* * * 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 in connection with
matters involving the ownership and operation of the Aircraft by the
Owner Trustee.'' (italicized emphasis added).
In that regard FAA is concerned that most non-citizen trusts involve
situations where the U.S. Citizen Trustee never possesses or operates
the aircraft which is rarely operated in U.S. airspace. Therefore the
italicized language might be interpreted as only limiting a Trustor's
rights and powers do direct, limit, or influence an Owner Trustee's
duties on those rare occasions when the Owner Trustee is the actual
operator.
In the proposed rewrite of subsection 9.01(a) FAA has tried to make
it clear that the Trustor may not control the Owner Trustee's duties
under the Agreement including, but not limited to, matters involving
ownership or the operation of the aircraft.
Request for Comments
FAA is seeking comment on the proposed policy clarifications and
trust agreement revisions, and invites interested parties to visit its
Web site for background information. The FAA will consider the comments
and other information received in formulating a final notice of policy
clarification, or in determining whether a new policy or rule should be
developed to address FAA safety and oversight concerns with non-citizen
trust registrations. The FAA also will consider whether an additional
public meeting is required to ensure an adequate airing of the public's
views on the use of non-citizen trusts to register aircraft in the
United States.
Issued in Washington, DC, on February 3, 2012.
Kathryn B. Thomson,
Chief Counsel, Federal Aviation Administration.
TRUST AGREEMENT
THIS TRUST AGREEMENT (XXX), dated as of XXX, (the ``Agreement'') by
and between XXX, a [corporation organized and existing] [limited
liability company formed] \7\ under the laws of XXX (``Trustor''), and
XXX, a XXX organized and existing under the laws of the XXX (``Owner
Trustee'');
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\7\ Choose the appropriate phrase depending on whether Trustor
is an LLC or a corporation.
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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 XXX Aircraft, serial number XXX, FAA
Registration Number N XXX together with the XXX engines, bearing
manufacturer's serial numbers XXX and XXX, 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 lessee under any Lease, or any operator under
any Operating Agreement.
``Lease'' means any agreement from time to time entered into with
respect to the Aircraft by the Owner Trustee, as Lessor, and a third
party Lessee,
[[Page 6700]]
whether or not at the direction of the Trustor.
``Operating Agreement'' means any agreement entered into between
the Owner Trustee and the Trustor, or between a third party Lessee and
the Trustor, transferring to the Trustor the right to possess, use,
operate or manage the Aircraft.
``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
Trustor, subject to the regulatory limitation that a non-U.S. citizen
not hold more than 25 percent of the aggregate power to remove a
trustee. [For purposes of this Section, ``for cause'' shall mean
willful misconduct or gross neglect so as to endanger the [Trust
estate]. Mere disagreements between Owner Trustee and Trustor shall not
constitute a cause warranting removal.] 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 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, whereupon all powers,
rights and obligations of the resigning Owner Trustee under this
Agreement (except the rights set forth in Section 3.08) 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
[[Page 6701]]
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 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 XXX, 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;
[[Page 6702]]
(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 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 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) upon receipt of an emergency airworthiness directive from the
FAA, to immediately forward the emergency airworthiness directive to
the Trustor and or Lessee 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 Article 3.03 or
removal under 3.02, or of the termination of the trust under 7.01.
(i) to authorize U.S. and foreign government officials to inspect
the aircraft.
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.
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 XXX, 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 XXX in its individual capacity on or
measured by any compensation received by XXX 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 XXX 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 the administration of the Trust Estate or
the action or inaction of Owner Trustee or XXX in its individual
capacity hereunder, except (a) in the case of willful misconduct or
gross negligence on the part of Owner Trustee or XXX 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 XXX in its individual capacity (or from
the failure of XXX 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 XXX
in its individual capacity in the disbursement of funds. The
indemnities contained in this Article 6 extend to XXX 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
[[Page 6703]]
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 XXX at
its office at XXX, Attention: XXX and (ii) if to the Trustor, to XXX,
Attention: XXX.
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
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
(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
Utah. The validity, construction and enforcement of this Agreement
shall be governed by the laws of the State of Utah 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. In all matters arising under the Agreement,
including the ownership and operation of the Aircraft the Owner
[[Page 6704]]
Trustee shall have absolute and complete discretion in connection
therewith and shall be free of any kind of influence or control
whatsoever by the Trustor. 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 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 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, 14 CFR 47.7 (c)(2)(iii). 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 to which trustor/beneficiary and trustee
are a party.]
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 the 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 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. 2012-2930 Filed 2-7-12; 8:45 am]
BILLING CODE 4910-13-P