Check your aircraft for mechanic’s liens at the FAA registry. Aircraft owners and operators must confirm the aircraft management company is using the funds received from the owners and operators to satisfy invoices of vendors for the correct aircraft. If your funds are used to satisfy invoices due for other aircraft, your aircraft may be subject to third party liens.
What To Do
You should periodically request a title search from an FAA escrow agent to confirm that no liens have been filed.
A proactive action is to periodically request confirmation directly from outside vendors (fuel providers, maintenance facilities) that there are no outstanding invoices or to obtain a list of the outstanding invoices (which should contain only recent invoices).
Why Check Your Management Company
This third party confirmation can help identify any cash flow issues with your management company, such as whether funds you pay are used to satisfy invoices for another aircraft. Consequently, if the issue is disputed in court, the statement from the third party vendor may be helpful to your court case to estop the third party vendor from collecting additional amounts that they later claim are outstanding.
Yes, This Requires Effort, But . . .
Yes, this is an additional burden on you. You hired a management company after you vetted them. You think they are reputable. However, you do not know if an executive absconded with funds or cooked the books. The management company may have accepted business from several owners who failed to pay their bills, putting the management company and ultimately you, in a financial bind.
Why a Lien is Filed Against Your Aircraft
If a vendor provided fuel or maintenance services to several aircraft managed by your management company, but only received partial payment, the vendor will generally try to file a lien against every aircraft to which it provided fuel or maintenance services. This may result in a lien against your aircraft when you have timely paid all invoices submitted to you by the management company.
How A Lien Is Filed Against Your Aircraft
The FAA looks to state law to determine if a mechanic’s/fuel lien can be filed against your aircraft.
At a minimum a claim of lien must include:
–the amount of the claim
–a description of the aircraft by N-Number, manufacturer name, model designation, and serial number
–dates on which labor, materials, or services were last furnished
–the ink signature of the claimant showing the signer’s title as appropriate
The recording fee is only $5 for each aircraft affected by the claim so claimants can easily send a lien for filing with the FAA.
If the FAA accepts the lien for filing, the aircraft owner must either pay the lienholder or obtain a court order to have the lien released. Because each state has different laws regarding mechanic’s/fuel liens on aircraft, forum-shopping is rampant. Again, if the lien claimant is successful in filing the lien against your aircraft title at the FAA registry, you cannot ignore the lien. It will not disappear. If you decide on a “wait and see” strategy and the lien claimant goes out of business, you may face time-consuming and even more costly litigation to clear the title to your aircraft.
What To Do If A Lien Is Filed Against Your Aircraft
You will not be able to sell your aircraft or finance your aircraft until the lien is released. If you file a court action to clear the title, this process can take months, if not longer.
If you already have financing that is secured by your aircraft, the mechanic’s lien is probably a violation of your loan covenants. Your lender may not be interested in the “wait and see” approach.
There are court decisions where a court determines that liens filed against an aircraft with the FAA were not valid under state law. A critical part of the last sentence is to note the economic cost incurred by an aircraft owner that was forced to file a lawsuit to have a lien determined invalid.
Maintaining vigilance with your aircraft’s service providers and vendors is important, but is not easy. Calendar to periodically audit vendors and remind your staff to question anything out of the ordinary.
Michelle M. Wade is a Partner with the aviation law firm of Jetstream Aviation Law, P.A. and counsel clients on the acquisition, financing and operation of corporate jets operated under Part 91 and Part 135 of the US Federal Aviation Regulations. Jetstream Aviation Law can be found at www.JetstreamLaw.com. Michelle Wade (email@example.com)