Dec. 9, 2021
In consultation with aviation attorneys, NBAA has reviewed potential strategies to help certain buyers and sellers complete aircraft transactions on Dec. 31 when the FAA Registry is closed, although the association still strongly recommends that transactions be finalized several business days before the federal holiday.
The FAA’s aircraft registration branch in Oklahoma City, OK, is expected to be closed on Dec. 31 for the New Year federal holiday. NBAA and the General Aviation Manufacturers Association (GAMA) have communicated to the FAA the potentially costly implications that this closure could have on the general aviation community due to an unprecedented volume of year-end aircraft transactions.
“My first advice would be to close an aircraft transaction by Dec. 30, unless you need a temporary certificate of aircraft registration, or Fly Wire, for international operations. Then, I would recommend closing by Dec. 29 at the latest because it may take a working day for the FAA to issue the Fly Wire,” advised Scott McCreary, shareholder and aviation group leader of the law firm McAfee & Taft.
Read more about the FAA Registry Closure.
Taxpayers looking to realize the full benefits of immediate expensing, also known as bonus depreciation, should also consider closing transactions several days before the federal holiday, noted NBAA’s Scott O’Brien, senior director for public policy and advocacy.
“The closure of the FAA Registry on Dec. 31 may present some challenges for parties trying to close on that day and also take bonus depreciation,” he said. “NBAA recommends working with your tax advisor to complete your transaction several days before the end of the year, to make sure all requirements are met.”
For some transactions, though, closing on Dec. 31 will be the only available option, so NBAA has reviewed several strategies that buyers and sellers can consider if they are unable to move their closing.
First, buyers should conduct a full document index inquiry with the FAA registry by the end of Dec. 30 to ensure there are no intervening filings and the records for the aircraft are in order.
If the equipment being sold and the relevant transaction is subject to the Cape Town Treaty, buyers, lessors and lenders should consider registering prospective sales or international interests on the International Registry prior to Dec. 31, or if that is not possible submit an entry point filing form – AC Form 8050-135 – with the FAA registry so that they have obtained a unique authorization code by close of business on Dec. 30. Obtaining the code may allow the parties to make the prospective registrations on the International Registry on Dec. 31.
“The protections afforded by a prospective filing on the International Registry may mitigate risk for the parties, especially for lenders, and thus help facilitate a closing on the 31st,” said McCreary. “For aircraft that do not meet the requirements of the Cape Town Treaty, lenders providing purchase money financing may also be protected by the provisions of the Uniform Commercial Code dealing with purchase money security interest and the 20-day time period allowed for a lender to perfect.”
In order to induce current lenders and owners to allow the prospective registrations on the International Registry, the parties may consider allowing the current owner, current lender or a third party to hold the right to discharge the prospective registrations. Once the parties confirm the documents have been properly filed, the right to discharge could be transferred back to the appropriate party, McCreary noted.
Learn more about the Cape Town International Registry.
“It’s going to take some negotiation and compromise from all parties, but this is not a unique situation. We know well in advance that the FAA registry will be closed on Dec. 31, and professional attorneys specialized in aviation law are well-versed in how to navigate this situation,” McCreary explained.
While it is prudent to file all documentation while the FAA registry is open, buyers who must close and fly the aircraft on Dec. 31 may be able to rely on a concept known as the “mailbox rule.” Federal Aviation Regulations allow parties to operate an aircraft within the United States with a copy of the aircraft registration application on board so long as they have, in part, “submitted” the appropriate evidence of ownership and aircraft registration application to the FAA Registry.
The mailbox rule considers placing a document in the mail, sending it by express courier or filing documents electronically in compliance with the FAA registry’s email requirements to be, under certain circumstances, tantamount to “submitting” the document to the FAA registry for the limited purpose of flying domestically on a copy of the aircraft registration application.
However, noted McCreary, the mailbox rule is not tantamount to filing documents with the FAA for purposes of perfecting rights in aircraft from a bankruptcy perspective or for purposes of establishing rights in a priority dispute. Also, this process only applies to aircraft currently on the FAA Registry and flights within the United States, McCreary added.
The complexity of these strategies, and the need for all the parties involved in an aircraft transaction to agree to these approaches, emphasizes the importance of closing deals before Dec. 31, noted O’Brien.
“NBAA continues to work with GAMA to seek mitigations from the FAA and will update members on any developments,” he added. “In the meantime, work with your legal and tax advisors on appropriate strategies to close before Dec. 31, but also know that if you must complete an aircraft transaction when the registry is closed you still have several viable options to discuss with your attorney, the seller and any other interested entities.”
International Business Aviation Council Ltd.