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| What's the best Aircraft Registration for you? |
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The US is often the first domicile considered, because of its well-established precedents; its systems of alerts; its requirements for record-keeping and compliance; its near-universally-accepted certifications, maintenance, and inspections; its tolerance (in general) of diverse aircraft; and its many reciprocal agreements. US registration, too, often means easier financing, insurance, and higher resale value. But there are drawbacks, and other nations are becoming aggressive in their solicitation of your registration. Financing, Insurance, Operations, Maintenance and Ownership Issues Stephen Hofer, President of Los Angeles-based Aerlex Law Group, says, “Owners historically preferred US registration because there are more airplanes here, more maintenance facilities; and a longer history of aircraft and record maintenance.” He notes, “Incomplete records – logs or maintenance records – have a dramatically negative effect on the market value. An aircraft that has been on the US registry continuously will be more attractive, even when owners do not qualify for US aircraft registration except through trusts. That is why the owner-trustee system is so popular.” Jolie Chung Howard, Director, Business Development for TAG Aviation Asia (with registrations in many countries), says, “Each country’s registration has up and down sides: crew licensing, ease of maintenance, taxes, cabotage regulations, operations regulations, cost of aircraft registration, financing restrictions; and costs of operations under that particular jurisdiction, or where most flying will take place, etc. There is no ‘one superior registration', because every owner has different needs.” Attorney Chad Nelson in Wichita notes another pitfall that awaits buyers who change registries: “Sometimes, when you buy an N-numbered aircraft, the receiving country requirements can be very different – and it’s not necessarily country-specific. It’s airframe-specific. Conformity changes can run into hundreds of thousands of dollars. The Caymans let you choose whether you use EASA or USA standards; a few owners exploit these differences.” He also cites the “hasslefactor” when working globally: “The biggest problems with closing transactions are time zones. Where is the guarantor? The beneficiary? The aircraft? The broker? You’ll spend a lot of late nights…” If there is no US-based ownership, US registration is problematic; and the FAA’s AD (Airworthiness Directive) compliance, along with certain record-keeping, may make a US registration unattractive. Then overlay the taxing and regulatory authorities of 50 state governments, some of which have unintuitive residency and tax schemes that can diminish the aircraft’s usefulness. US transparency rules regarding ownership do not afford the privacy some high-net-worth individuals seek (though some banks and attorneys specialise in setting up virtually opaque “owner” and “voting” trusts). David Richter, president of Jet Options International (Boston) notes that carefully-crafted trusts can mask top-line ownership quite effectively, and he recommends that specialists in aviation and taxation law handle such trusts and other ownership vehicles. Anonymity is important to many because of the risks of kidnapping, industrial and national espionage, and sabotage, among others. However, even with an anonymous registration, the repeated presence of a foreign-registered aircraft at a given airport can attract attention. Nelson adds, “In the Middle East and some Asian countries, owners [who used to register in the US] now register into Bermuda, Aruba, or another venue – they’re afraid of terrorists [who might be attracted to an N-registration].” Ed Kammerer, partner at Hinckley, Allen, Snyder LLP, Rhode Island, USA, not only handles setting up such trusts; he also has a wide network of in-country brokers who specialise in getting inspections and registrations done in the proper order and by the right people. He says, “If frequent travel to or in the US is anticipated, an N-number may be in your best interest, although the Transportation Safety Administration (formed after the 9-11 terror attacks) has placed additional requirements on foreignregistered aircraft.” An anonymous fellow CAM advises that the TSA doesn’t really care who owns the airplane; they care if it’s US-registered. Of course that’s irrelevant as far as terrorist activity is concerned… Politics: Always Important When a government goes looking for assets, yours may be at risk. Broker Phil Jordan at Business Air (Dallas), says, “N-registration doesn’t always give you the political clout you need [for daily operations], but it does give you some security against getting your airplane nationalised or otherwise lost.” And follow the local laws: “If you plan any cabotage, get approved beforehand, or you can get fined, even lose your jet.” “General Aviation” is not recognised in many communist countries. In China, for instance, owning airplanes is considered “wretched excess”, so any aircraft that may be operated for hire (charter and some aspects of “corporate” ownership) must be 51 percent state-owned, typically through an airline. But that airline may require hiring two dozen pilots… for a one-airplane operation. China also controls cross-border uses. Jeffrey Lowe of BAA Jet Management Ltd. (Hong Kong, Shenzhen, Beijing), notes that “Hong Kong and Macau are foreign registries as far as China is concerned. A Hong Kong or Macau-registered aircraft flying in China is considered an international flight.” China has many restrictions and very different taxes and fees on foreign-based aircraft. Airports they may visit are limited in number, and cabotage is virtually impossible, without Chinese registry. On the other hand, if most flights are to be conducted within China, Chinese registration may offer significant advantages. History Matters A capricious administration may invite your aircraft but later change its rules, leading to inconvenience and expense. The risks of loss, damage or even nationalisation are valid concerns. (One of this writer's calls on background for this article was to a corporate chief whose jet, among others, was grounded indefinitely in Tbilisi, Georgia. Though not afraid of actually losing his airplane, he worried what the extended grounding would mean for its condition upon eventual repatriation.) Under the FAA, the latitude in rules interpretation practised by individual FSDOs (Flight Standards District Offices) – even turnover of key personnel – can lead to conflict. This is seldom seen elsewhere, where authority is centralised. Pat Dunn, based in Malaysia, says, “Bermudan registry has given me no problems, around the world. Their very good regulations are well-enforced. You make one call to one office, and you get your answer, 99% of the time. They are consistent and easy to contact… 8 am to 5 pm, Monday through Friday, anyway!” Kammerer agrees. “Bermuda has an established registry and it's a Commonwealth country, so there is a lot of reciprocity, particularly for European nations.” Others (such as the Isle of Man, Aruba, Cayman Islands, and the Bahamas) are also making a run at being ostaccommodating. Responding to high taxes, fees, transparent records and onerous regulations (or anomalies in recordkeeping) abroad, these countries register an increasing population of aircraft rarely seen “at home”. More Considerations Attorney James Cooling (Kansas City, USA) cautions that misunderstanding jurisdictions (“Who is in charge, and when?”) is little considered until it becomes a problem. Kammerer urges consideration of financing. “Lenders won’t lend against aircraft registered in countries they (lenders) don’t understand or trust. Bermuda and the Isle of Man are comfortable for financiers, both from a ‘stability of registry’ question and from the overall political climate; [their strict maintenance requirements] protect the lenders’ collateral.” He adds, “Taxation policies… and other schemes can reducethe lenders’ equity.” Do not make assumptions. “The rules are straightforward, but they vary [from country to country]. And when you operate in one country and are registered in a second, you must comply with both countries’ rules and requirements.” Some of those requirements appear when the aircraft is sold, particularly if the country of registration changes. Richter says one common mistake when changing countries of registration is getting required steps out of sequence. As a general rule (and this can vary), he recommends closing the deal in a “fly-away” state to avoid double taxation and then flying to the inspection site, where the new owner should set up a certificate of inspection under the old registration. Only then, deregister the aircraft, complete the inspection, and reregister in the new country. Getting these steps out of order can trigger headaches that take months to cure. It is easy to place a lien on an aircraft; a simple form may be the only requirement, and mischief has been done by disgruntled employees, competitors, even angry spouses. A thorough “title search” by an aviation specialist plus title insurance are practical necessities, as is examination and inspection of the logbooks and of the actual aircraft, to ensure compliance on paper and in fact. Complications routine in-country can explode when national boundaries are crossed, even if the only actual movement is in paperwork. |
The choice of country of registration is as significant as the fact that the mission profile determines the make and model of your airplane.
