The aviation industry is a highly regulated sector where ownership, safety, and security are of paramount concern. One unique practice in this field, especially in the United States, is the use of non-citizen trusts (NCTs) to register aircraft.

This arrangement allows foreign entities to register aircraft in the US, circumventing certain restrictions related to foreign ownership under US Federal Aviation Administration (FAA) regulations. While non-citizen trusts offer flexibility and access to U.S. registration advantages, they also raise questions about transparency, environmental impacts, and their effect on communities.

In this article, we will delve into what non-citizen trustees in aviation are, why they are used, their environmental implications, why they may pose risks to communities, and the challenges associated with tracking aircraft ownership.

Understanding Non-Citizen Trusts in Aviation

The United States maintains strict regulations around the registration of aircraft to ensure safety and compliance with aviation laws. According to FAA rules, for an aircraft to be registered in the US, it must be owned by a US citizen or entity.

In aviation terms, a "citizen" encompasses individuals, partnerships, or corporations that meet specific requirements regarding ownership and management by US nationals. However, many aircraft owners and leasing companies are based outside the United States. For these non-US entities, the non-citizen trust arrangement serves as a legal workaround to meet FAA registration requirements.

A non-citizen trust is essentially an arrangement where a US-based trustee, such as a bank or trust company, holds the legal title to an aircraft on behalf of a foreign beneficiary. The beneficiary retains the right to use and operate the aircraft, while the trustee is listed as the official owner in FAA records. The trustee’s role is largely administrative, ensuring compliance with FAA requirements and providing a layer of legal separation between the aircraft’s true owner and the US government.

The Bank of Utah, for instance, is one of the prominent institutions providing non-citizen trust services. It is named as the registered owner for thousands of aircraft on behalf of foreign entities. While it does not actually control the aircraft's day-to-day operations, it acts as the legal owner in the eyes of US law. This arrangement allows foreign owners to benefit from the regulatory advantages of US registration, including easier financing, insurance benefits, and often a higher resale value for the aircraft.

Why Non-Citizen Trusts Are Used

The use of non-citizen trusts in aviation stems from the advantages that US aircraft registration offers, as well as certain regulatory barriers that exist for foreign entities. There are several reasons why this practice is widely used:

Firstly, US registration is viewed as a mark of regulatory approval and compliance with some of the highest safety standards in the world. Aircraft registered with the FAA are generally perceived to be well-maintained and safe, given the stringent oversight the FAA requires. This can make the aircraft more attractive in the international market, and boost their resale value. In addition, US registration often simplifies the process of obtaining insurance and financing for aircraft, as financiers and insurers may view FAA-registered aircraft as lower-risk assets.

Secondly, for foreign owners who want to keep their aircraft in the US for maintenance, storage, or use, registering under a non-citizen trust can help circumvent certain legal or logistical hurdles. For example, certain maintenance facilities may require aircraft to be FAA-registered to qualify for services, or the costs may be lower for US-registered aircraft.

Another major reason for using non-citizen trusts is the limitation imposed by FAA regulations regarding foreign ownership of US-registered aircraft. These rules were originally designed to ensure that aircraft registered in the US are controlled and operated by entities that are subject to US jurisdiction, thereby safeguarding national security and regulatory oversight. Non-citizen trusts allow foreign entities to enjoy the benefits of US registration while technically adhering to the ownership restrictions.

While non-citizen trusts serve a practical function for aircraft registration, the practice has come under scrutiny for several reasons, including lack of transparency and potential risks to aviation security.

Environmental Issues Related to Non-Citizen Trusts

The practice of non-citizen trusts also has implications for the environment, particularly because it facilitates the ease of aircraft transfers and promotes a global market for used aircraft. These factors can contribute to increased emissions and environmental degradation in several ways.

Firstly, the existence of non-citizen trusts enables aircraft owners to easily shift their fleet across different jurisdictions, leading to more frequent aircraft turnovers and potentially increasing the number of planes in circulation. The aviation industry already faces criticism for its significant carbon footprint, with air travel contributing to roughly 2-3% of global CO2 emissions. By enabling easier transfers and registrations, non-citizen trusts can indirectly encourage more flying, since airlines can rapidly expand or downsize their fleets according to market conditions.

The frequent buying, selling, and re-registering of aircraft facilitated by non-citizen trusts also leads to increased emissions associated with aircraft repositioning. When aircraft change ownership or registration, they often need to be flown—sometimes over long distances—for inspections, repainting, or to meet new maintenance requirements. These "ferry flights" consume fuel without carrying passengers or cargo, thus adding to the overall environmental burden of aviation.

Moreover, the existence of non-citizen trusts can complicate efforts to regulate and monitor the environmental practices of aircraft operators. Since the true ownership and control of the aircraft can be obscured, it may be difficult for regulators to enforce compliance with emissions standards or other environmental laws. This could allow some operators to bypass or ignore regulations that aim to reduce the environmental impact of aviation, thereby contributing to greater pollution and resource use.

Why Non-Citizen Trusts Are Bad for Communities

The use of non-citizen trusts can negatively impact local communities, particularly those near airports and in regions where aircraft operations are prevalent.

One major issue is the lack of transparency and accountability when it comes to the true ownership and control of aircraft. When a US-based trustee holds the title on behalf of a foreign owner, it can be challenging for local authorities to ascertain who is responsible for compliance with noise regulations, pollution standards, or safety protocols. This lack of clear accountability can be detrimental to community efforts to address environmental and noise pollution caused by aviation.

Additionally, when aircraft registered under non-citizen trusts are operated by companies with little to no local presence, communities may find it difficult to seek recourse for grievances related to noise, emissions, or other disturbances. The legal and regulatory frameworks in place are typically designed to hold local entities accountable, but non-citizen trusts create a layer of separation that makes it difficult to identify and hold the actual operators responsible.

Furthermore, the proliferation of aircraft registrations under non-citizen trusts can contribute to a sense of regulatory evasion, where foreign operators use legal loopholes to gain access to US aviation benefits without adhering to the same level of oversight or community obligations as domestic operators. This can erode public trust in the regulatory system, as communities may perceive the rules as being unfairly lenient towards foreign interests.

Issues When Trying to Track Planes or Ascertain Ownership

The practice of using non-citizen trusts complicates efforts to track aircraft ownership and determine who controls them. This poses several problems in terms of aviation safety, law enforcement, and regulatory compliance.

Non-citizen trusts obscure the true ownership of an aircraft by placing the US-based trustee as the official owner on FAA records. While the trustee holds legal title to the aircraft, they do not have control over its operation or management, which remains in the hands of the beneficiary—the actual owner. As a result, there can be significant challenges when trying to determine who is responsible for an aircraft in the event of an incident or regulatory breach. For example, if an aircraft is involved in an accident or is found to be non-compliant with safety standards, it may not be immediately clear who should be held accountable, as the trustee's role is limited to administrative functions.

This lack of transparency is particularly concerning for law enforcement and national security. Authorities may need to trace aircraft movements or establish ownership connections in cases of criminal investigations or security threats. However, with non-citizen trusts, the layers of legal separation make it difficult to obtain the necessary information, particularly if the beneficiary is based in a jurisdiction with stringent privacy laws or limited regulatory cooperation. This can hinder investigations and delay response times in critical situations.

Moreover, non-citizen trusts can complicate efforts to track aircraft ownership changes over time. Aircraft may be transferred between trusts or beneficiaries, leading to frequent changes in registration details. This makes it difficult for aviation authorities and industry stakeholders to maintain accurate records, which are essential for safety oversight and regulatory compliance. The fluid nature of aircraft registration under non-citizen trusts can thus undermine the reliability of data used for monitoring aircraft safety, emissions, and other critical factors.

While the FAA does have requirements for trustees to maintain records of the actual owners and operators, these records may not always be readily accessible to the public or even to other government agencies. The regulatory structure prioritizes compliance with FAA standards rather than comprehensive transparency about beneficial ownership, leaving gaps in the system that can be exploited.

Conclusion

Non-citizen trusts in aviation provide a legal mechanism for foreign entities to register aircraft in the US while adhering to FAA ownership rules. They offer benefits such as access to US registration, easier financing, and increased resale value for aircraft.

However, the practice also introduces significant concerns regarding transparency, environmental impact, and community accountability. The arrangement can obscure the true ownership of aircraft, making it challenging for regulators, law enforcement, and the public to track aircraft ownership or hold operators accountable for compliance with laws and regulations.

The environmental implications of non-citizen trusts cannot be overlooked. By enabling a global market for aircraft transfers, these trusts contribute to increased emissions and environmental degradation. The frequent repositioning of aircraft and the ease with which operators can change jurisdictions can exacerbate aviation's already substantial carbon footprint.

For communities near airports and aircraft operations, the use of non-citizen trusts represents a challenge to local regulatory enforcement and transparency. The separation of ownership and operation makes it difficult to seek recourse for environmental and noise pollution issues, and the perception of regulatory evasion can undermine public trust in aviation oversight.

Addressing the challenges posed by non-citizen trusts may require reforms that enhance transparency and accountability while still allowing for the practical benefits that these arrangements offer. Efforts to improve regulatory cooperation, require greater disclosure of beneficial ownership, and strengthen environmental and community protections could help mitigate some of the adverse impacts associated with non-citizen trusts in the aviation industry.