Qualifying for U.S. Aircraft Ownership: Not as Simple as it Seems

Qualifying for U.S. Aircraft Ownership: Not as Simple as it Seems — Originally published in BusinessAir Magazine, February 2017, Volume 27, No. 2.

Are you eligible to own an aircraft registered in the United States? The United States Code (or “U.S.C.”) enacted by the U.S. Congress establishes the ownership requirements for civil aircraft registered in the United States. A U.S. registered aircraft can be owned by (i) a person or entity who meets the definition of “Citizen of the United States” as set forth in 49 U.S.C. 40102(a)(15), or (ii) a person who is a resident alien, or (iii) a non-citizen United States corporation.

The most common ownership situation involves a person or entity that meets the definition of “Citizen of the United States” in 49 U.S.C. 40102(a)(15). Section 40102(a)(15) provides a definition for individuals, partnerships and corporations/ associations (which also applies to limited liability companies).

Many of my clients don’t think about this requirement because they personally are United States citizens and they assume that any partnership, corporation or limited liability company (“LLC”) formed in the United States will qualify. However, each entity has a specific test to see if it meets the statutory definition, and many entities that one would assume qualify to own an aircraft registered in the United States, in fact, do not.

Partnerships that own aircraft are rare because the citizenship test requires “a partnership each of whose partners is an individual who is a citizen of the United States.” The partnership must be comprised of individual United States citizens and if any of the partners are not individuals (i.e., a corporation or another partnership), the partnership fails the citizenship test. Since partnerships, especially limited partnerships, often have at least one corporate partner, they often fail the citizenship test. It is important to note that in the case of a limited partnership, the general partner and the limited partners must all be individuals.

Another perplexing ownership situation arises when the potential owner entity is a multi-layered LLC. When an LLC owns an aircraft, an additional document called the statement in support of registration (“SSR”) must be filed with the FAA registry. The SSR is a statement that confirms that the citizenship test for an LLC has been satisfied. In addition to filing the SSR for the entity which will own the aircraft, an SSR must also be filed for every LLC within the ownership structure. This means that if the owning LLC is managed by an LLC or has several LLCs which are members, each LLC must file an SSR. Each layer of the LLC must meet the three-pronged citizenship test described below in order for the owning entity to be able to own an aircraft registered in the United States. An additional concern is that because each LLC within the owning entity as well as the owning entity must file an SSR, there is a significant loss of anonymity. Each layer of the structure is disclosed and the information is available to the public.

Both corporations and LLCs face a three-pronged citizenship test under Section 40102(a)(15). First, the corporation or LLC must be incorporated or formed and existing under laws of the United States or any state, the District of Columbia or a territory or possession of the United States. Second, all of the following management tests must be satisfied: (i) the president must be a United States citizen, (ii) at least two-thirds of the managing officers/managers must be United States citizens, and (iii) at least two-thirds of the directors must be United States citizens. Finally, at least 75 percent of the voting interests (corporate shares or LLC membership interests) must be owned or controlled by citizens of the United States, and the entity must be under the actual control of United States citizens.

Another way to own an aircraft registered in the U.S. is as a resident alien. The resident alien applicant must check the appropriate box on the FAA aircraft registration application and provide the FAA with his/her alien registration number. It is important to note that while a resident alien may own an aircraft individually, the resident alien does not satisfy any of the management or control requirements for a corporation or partnership. For example, if the sole member of the LLC is a resident alien, the LLC does not satisfy the citizenship test.

The final way to own an aircraft registered in the U.S. is as a noncitizen U.S. corporation under 49 U.S.C. 44102(a)(1)(C). An aircraft can be registered by a corporation that does not qualify as a U.S. citizen as long as it is incorporated in one of the United States and the aircraft is based and primarily used in the U.S. This is commonly referred to as “based and primarily used registration.” The non-citizen United States corporation applicant must check the appropriate box on the FAA aircraft registration application and list an address where records are available for inspection.

It is important to consider all of these rules and requirements when planning the ownership structure for an aircraft. Discovering immediately prior to closing that the purchasing entity cannot legally own an aircraft registered in the United States causes unnecessary stress and can delay the closing of a purchase.

Please contact Amanda Applegate at 310-392-5200 or aapplegate@aerlex.com.