What it Does Not Provide for Your 2021 Aircraft Transactions
In light of the Federal Aviation Administration’s extraordinary agreement to keep the Aircraft Registry open on December 31, there are crucial details which must be considered when closing aircraft transactions this year. We have prepared a list of eight tasks the FAA will not be performing on Friday, December 31, and what this means to your end-of-the-year aircraft transactions. Jack Gilchrist, of Gilchrist Aviation Law, provides full details in this article.
I offer this follow-up to all the discussions over the past week about year-end planning for aircraft transactions. You may have heard the news that broke late last week from the good efforts of the NBAA and GAMA, with assistance from others such as IADA and NAFA. These industry organizations spent significant time, energy and political heft to convince the FAA to work with the aviation industry to close transactions through the end of 2021.
To summarize the challenge, the last two Fridays of 2021 (December 24 and December 31) are federal holidays this year, Christmas Day and New Year’s Day, observed. In addition, the notable practice of the U.S. Federal Government during 2021 has been to direct many federal agencies, FAA included, to release employees early the day prior to similar holidays. This would leave us involved in the aircraft transaction business only 13 working days to close transactions before year’s end, minus any time the FAA might be instructed to release employees early on both December 23 and December 30, the days prior to the federal holidays.
These aviation industry organizations have worked closely with the FAA, convincing them to agree to: (1) remain fully staffed throughout regular business hours on Thursday, December 30 (the day prior to the last federal holiday); (2) leave partially open the Public Documents Room at the Aircraft Registry on Friday, December 31, for the primary purpose of dropping documents in the box for FAA processing; and (3) provide a skeleton crew on the federal holiday, Friday, December 31.
First, we should recognize, that this crew the FAA has agreed to providing is both helpful and greatly appreciated. Second, we need to make clear that the crew the FAA has committed to provide on December 31 is a “skeleton” crew, and as such will be comprised of three people performing specifically two narrowly focused functions. They will retrieve documents dropped in the assigned box for filing with the FAA. Additionally, they will apply the FAA file stamp to documents submitted through the filing box and those filed electronically (via the agreed Email procedure).
It is important during this time for everyone conducting aircraft and aircraft equipment transactions to note the following, a list of some of the daily tasks the FAA performs under regular circumstances, but that the FAA will not be performing on Friday, December 31:
The FAA will not process (scanning, indexing and recording) documents filed on December 31;
The FAA will not complete the processing of documents initiated but not completed on or prior to Thursday, December 30;
The FAA will not update the indices of documents filed on Friday, December 31, and possibly documents filed late on Thursday, December 30;
The FAA will not register aircraft (no fly-wires/temporary Certificates of Aircraft Registration);
The FAA will not issue unique authorization codes (FAA Form 8050-135, authorizing registrations on the International Registry based on documents filed with the FAA);
The FAA will not answer the public phone line to respond to questions or requests from the public regarding any matters handled by the Aircraft Registry;
The FAA will not import aircraft onto the U.S. Registry; and
The FAA will not cancel FAA registration of aircraft for purposes of exporting an aircraft onto a foreign civil aircraft registry.
What this means for those of us conducting aircraft transactions during these last days of 2021 is that parties will not be able to do any of the following aircraft transaction tasks:
Parties will not be able to determine whether documents they are filing have priority over other security interests or title transfers filed in advance on December 31;
Parties will not receive accurate or complete lien searches on December 31 (because the indices of documents filed will not be up to date);
Parties should not expect aviation legal counsel to issue legal opinions, assuring the legal effects of the filing of title and security documents with the FAA; Parties will not receive lien searches or legal opinions until the following business days (in 2022), and only then when the FAA has brought up to date the filings made late Thursday and Friday;
Parties cannot engage in international flights following a title transfer where documents are filed late on Thursday, December 30 or anytime on Friday, December 31;
For aircraft being imported onto the U.S. Registry from a foreign seller, parties cannot engage in any flight following a title transfer until the aircraft is registered with the FAA (fly-wire issued);
The above means that the only real transactions that can be completed on Friday, December 31, are those that were begun days prior. The only task that can be done on December 31 is the filing of documents for which filing dates and times during 2021 are vital. The tasks performed by the FAA on that Friday could also provide parties with a bit of extra comfort that they can fly within the U.S. on the “pink copy” of an Aircraft Registration Application (FAA Form 8050-1) filed on Friday.
Although lenders and other creditors can make International Registry (IR) registrations (even without the authorization provided by the FAA Form 8050-135), they will not have assurance that title to the aircraft continues to be in the name of a debtor prior to the granting of security interests. As a result, it should be a truly unavoidable lending transaction which closes with reliance on an FAA filing on Friday, December 31.
I do hold the position that, though the FAA will not issue the IR authorization codes contained in FAA Forms 8050-135, registration of international interests can be made on December 31, providing Cape Town Convention protections for IR registrations of international interests. Regardless, lenders and other creditors are best advised not to rely on these registrations to protect priority of security interests on Friday, December 31.
Our aircraft transaction clients should keep in mind that the industry may still be at risk of early closure on the day prior to Christmas Eve, December 23, because the FAA has not made any commitment to maintain regular work hours that day. Also, keep in mind the FAA Registry will be completely closed all day Friday, December 24.
The last time I remember something this unusual happening with the FAA was about 25 years ago when we managed to arrange with the FAA to provide staffing for a large air carrier fleet closing over a Saturday. It is hard to imagine that happening these days: I know, we’ve tried! But the industry organizations referenced above have taken their representation of their membership seriously, accomplishing an unlikely but potentially valuable objective with the FAA.
We should all be thankful to the FAA for their willingness to work with an extraordinarily busy aviation industry and for the willingness to require some of their hard-working staff to serve this industry by working on what turns out to be the last federal holiday of 2021!