All owners, lessors, and lessees of U.S.-registered aircraft and holders of security interests and aircraft mortgages in such aircraft, should be aware of a new proposed rule that is about to be adopted by the Federal Aviation Administration (FAA). The new rule requires (1) re-registration of all 340,000+ U.S.-registered aircraft at a specified time during the 15-month period after the final rule is published and (2) renewals of these registrations, new registrations filed after the rule becomes effective, on a three-year rolling basis. The final rule is expected to be published in early June 2010.
According to the FAA, the primary purpose of the rule is to improve the accuracy of the FAA's records and, as a collateral benefit, assist U.S. law enforcement authorities in combating the use of improperly registered aircraft for illegal activities. The FAA estimates that close to one-third of all currently registered aircraft do not qualify for registration, yet under current FAA rules, those registrations do not expire.
The new rule will require each registered owner to submit a manual application for re-registration to the FAA within a three-month period specified in the final rule. The FAA will publish a list of these three-month periods applicable to each currently registered aircraft. It is anticipated that there will be one three-month period for each calendar month in which the current registrations were issued by the FAA. The entire re-registration process will take place over a 36-month period. For example, if the final rule is published in June 2010, it is anticipated that the first re-registration period will be September – November 2010 for all aircraft for which certificates of registration were issued in January of any year.
The FAA will not be providing warning notices to current registered owners for the initial re-registrations, but will do so for subsequent renewals.
The consequences of failing to re-register on a timely basis are potentially severe. The aircraft's registration would be cancelled at the end of the three-month re-registration period. The cancellation would suspend authority to operate the aircraft until it is properly re-registered and could trigger a default under existing loan and lease documents. In addition, the aircraft's N-number would be cancelled within a short period after the registration is cancelled and cannot be reissued for five years. When a re-registration application is filed after registration cancellation and N-number cancellation has occurred, a new N-number will be issued and will need to be painted on the aircraft. Cancellation of registration might also result in a loss of insurance coverage.
Registration cancellation also might adversely affect perfection of security interests held by a lender and/or lessor of the aircraft.
Foley's Aviation & Aircraft Transaction Services attorneys will provide further information once the final rule is published by the FAA.
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