If a SPAC (special purpose acquisition company) is buying your company, and your company owns a plane, avoid grounding the aircraft by identifying whether the acquisition by the SPAC affects the aircraft’s registration and operations and if so, what changes are necessary to remain in regulatory compliance with the Federal Aviation Regulations.
SPAC Ownership Can Affect FAA Regulatory Compliance
Registration of the Plane
The FAA regulations include requirements involving the ownership and management of all entities in the chain of ownership of the company jet. Check the future regulatory compliance status of the aircraft’s registration if the SPAC acquisition involves any entity in the chain of entities that own the company jet. Check each entity in the chain to confirm compliance with the FAA regulations. A few hours now can save significant time and money later. On the day the company president is to depart to fly to Paris do you want to be the person to report that the jet is no longer properly registered and that the company risks violation of the insurance policy?
Operation of the Plane
In addition to looking at the ownership entities, look at the entities operating the aircraft. Are there any lessees? Will they continue to lease the aircraft? Do additional entities need to lease the aircraft? Will any corporate changes inadvertently create a sole purpose flight department company?
Annually Review the Jet for Regulatory Compliance
Change is a regular part of the business cycle. An annual review of the impact of corporate changes on the registration and operation of the corporate jet should also be a regular part of the business cycle. Do not wait until the day the plane is to depart for an important meeting to discover that a lease was never created so the jet cannot be properly operated and the company is at risk of not having insurance coverage.
Specific Changes Affecting the Company Jet
- Does the new SPAC meet the FAA’s definition of U.S. citizen eligible to register an aircraft with the FAA?
- For any entity in the chain of entities that own the company jet will an LLC convert to an LLP?
- Will there be a change in the primary hangar location of the aircraft? This can affect sales tax on the aircraft. The financing on the aircraft may require the company to notify the lender or obtain approval of the lender before this change.
- Will several lessees be added to the point it risks exceeding the number of dry leases that are acceptable by the FAA?
Ask Questions to Identify Pending Changes
If the flight department hears about possible corporate structure changes, whether due to a SPAC acquisition or otherwise, ask questions. Asking questions at the outset can put the issue on the checklist of those involved with a SPAC acquisition and addressing the FAA regulatory issues before they become a problem and ground the plane can save many hours later explaining why the jet registration and operation were not addressed during the acquisition. Explaining that FAA regulatory requirements are behind these questions will help educate the regulatory compliance and legal departments on risks for the aircraft that may be unintentionally created for violations of the Federal Aviation Regulations.
An aviation attorney experienced in business aviation will work with the company’s SPAC acquisition team to address aviation legal issues that arise during an acquisition, merger, or re-organization. The team can work to retain the jet’s regulatory compliance status so that the jet will continue to be validly registered and operated, while also considering business goals and tax goals to achieve the best possible result.
Michelle M. Wade is a partner with the law firm of Jetstream Aviation Law and counsels clients on the acquisition, financing and operation of corporate jets operated under Part 91 and Part 135 of the Federal Aviation Regulations. Jetstream Aviation Law can be found at www.JetstreamLaw.com.