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Vedder Thinking | Articles FAA Issues Final Policy Clarification on NCTs

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On June 18, 2013, following two years of industry debate, the Federal Aviation Administration (FAA) issued a policy clarification regarding the use of noncitizen trusts (NCTs) for FAA registration of aircraft. The policy clarification, which became effective on September 16, 2013, is generally consistent with the preliminary policy clarification issued by the FAA on February 9, 2012. A copy of the policy clarification can be found at: www.gpo.gov/fdsys/pkg/FR-2013-06-18/html/2013-14434.htm, and a discussion of the preliminary policy clarification can be found at www.vedderprice.com/NCT.

In the policy clarification, the FAA confirms that it will treat NCT trustees the same as owner/operators from a regulatory compliance perspective and will rely on these trustees to provide information about NCT-registered aircraft, including the identity of the operator or manager of the aircraft and information regarding the location of the aircraft and its base of operations, crew and maintenance. In issuing the policy clarification, the FAA acknowledged that although contractual delegation of the informational responsibilities to an operator will not relieve an NCT trustee of its responsibilities (as was proposed by industry participants), such delegation may represent a reasonable means for NCT trustees to ensure their ability to satisfy FAA requests for information and be considered favorably by the FAA.

From a documentary perspective, the policy clarification requires NCT trust agreements to include provisions consistent with the new informational requirements, and finance parties have also begun to incorporate new covenants, default triggers, remedies and other provisions into their other transaction documents in response to the policy clarification. Not surprisingly, the presence of the new documentary requirements has resulted in increased review times at the FAA in connection with closings, which will no doubt be resolved over time through the development of documentary and other transaction precedent that is approved by the FAA.

If you have questions about this update, please contact Edward K. Gross at +1 (202) 312 3330.

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Edward K. Gross

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