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, 6694-6704 [2012-2930]

Agencies

• Federal Aviation Administration
• DEPARTMENT OF TRANSPORTATION

[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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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'');
---------------------------------------------------------------------------

    \7\ Choose the appropriate phrase depending on whether Trustor 
is an LLC or a corporation.
---------------------------------------------------------------------------

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