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Developments in Non-Citizen Trusts and Business Aviation

It has recently come to our attention that one American financial institutions acting as owner trustees for the purposes of aircraft registration under the United States FAA Aircraft Registry system, had begun denouncing their appointments as trustees and commencing the process for either transferring or collapsing the existing trust structures.

Background

Under the rules for registering aircraft in the United States, a non-U.S. citizen is not eligible to register an aircraft, except pursuant to certain exemptions and legal ownership structures. The use of non-citizen trust structures, which are accepted under the American legislation and by the FAA, allows a foreign national to register an aircraft under FAA registry. Some Canadian owners use this mechanism for numerous reasons, but primarily to allow for more seamless travel in the United States.

Recent Developments

The situation is still unfolding. It is our understanding that the one financial institution which acts as trustees with regards to these non-citizen registrations, initially began resigning from their role as trustees with respect to foreign owners based in the higher risk countries. These moves were made at the request of American banking and aviation regulators, as well as due to internal risk assessments conducted by that financial institution. More recently, regulators and the internal risk assessment groups, have come to the conclusion that this financial institution should resign from acting as trustee for all business aviation transactions. This will likely leave several hundred Canadian trust beneficiaries seeking successor trustees, or other trust solutions so that they can retain their aircraft registered under the FAA Registry.

For aircraft owners that are faced with this dilemma, they will need to find a suitable successor trustee. Certainly, due to the intricacies and requirements of business aviation operations, these individuals may want to select the mechanism which will have the least amount of impact on their aircraft operations. And additionally, the resignation of a trustee, may give rise to certain tax implications, depending on the jurisdiction in which the trustee and/or the aircraft are located in at the effective time of the resignation.

The other option for aircraft owners, is to establish a new trust rather than appointing a successor trustee. Obviously, any of the above noted changes, will be complicated and need to be coordinated with any lenders that are involved with the aircraft asset. Lenders may also seek to have input on the decision as to whether a new non-citizen trust or the appointment of a subsequent trustee is the preferred avenue to follow.

As this issue is developing, it is our intention by this advisory to inform Canadian aircraft owners who may be either already informed of the anticipated resignation, or potentially faced with having to deal with a resignation. We are currently discussing potential resolutions with other financial institutions and authorized trustees who specialize in the business aviation market.


Standing (Blanket) Special Flight Operations Certificates – UAVs & Drones

For example, when the top of the Toronto’s CN Tower was lifted into place using a helicopter, it was carried out in accordance with and under the authority of an SFOC.

To date, Transport Canada has reacted relatively swiftly in dealing with the rapidly expanding demand for commercial UAV operations. In addition to the two basic weight-based Ministerial Exemptions issued earlier this year (>2kg & 2-25kg), Transport Canada has developed and refined Staff Instructions to assist its inspectors with the issuance of SFOCs and to promote nationwide consistency in the processing of such applications.

However, as UAVs become more accessible and user-friendly, they will begin to carry-out more routine tasks, such as filming a bird’s-eye view of a newly listed house for sale. Such routine movements will tend to share similarities, such as operational risks, required pilot/operator training, surrounding airspace classifications and restrictions, etc. In addition to these commonalities, commercial opportunities utilizing drones are seemingly arising more rapidly, and in need of prompt service than previous SFOC flights. Accordingly, in order for UAV operators to effectively service the needs of their customers, they will require greater latitude for when and where they may undertake a project. Enter the Standing SFOC.

Standing SFOCs, often referred to by clients as “blanket SFOCs”, provide operators with very broad operational authority and discretion. They reflect the commonality of the operator’s past flights as well as the operator’s experience in the particular environment. In determining whether a Standing SFOC ought to be granted, Transport Canada inspectors look for two important factors: track record and obtained knowledge. In their view, an operator that has safely carried out numerous SFOC-sanctioned projects constitutes less of a risk to aviation safety than does an operator with no established track record.

Obviously, in order to develop such a track record, operators will need to undertake all commercial UAV flights in compliance with the CARs, likely pursuant to an SFOC. Operators that progress their operations in zealous compliance with the law have a much more favourable case to present once they finally develop the expertise and procedures to justify the issuance of a Standing SFOC. The last thing an operator wants is to apply for a Standing SFOC on the basis of past commercial flights, only to be fined under the CARs.

Transport Canada UAV SFOC Requirement Flowchart

Transport Canada UAV SFOC Requirement Flowchart