[Federal Register Volume 71, Number 222 (Friday, November 17, 2006)]
[Notices]
[Pages 67007-67009]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-9250]


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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration


Acceptance of Transfer Statements Under UCC 9-616, for Recording 
in Aircraft Records

ACTION: Notice.

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SUMMARY: This notice is issued by the Federal Aviation Administration 
(FAA) Chief Counsel to advise interested parties of the FAA's 
acceptance of transfer statements filed with the FAA Aircraft Registry 
that are executed under the Uniform Commercial Code, section 9-619, as 
adopted by the various states.

[[Page 67008]]


FOR FURTHER INFORMATION CONTACT: Joseph R. Standell, Aeronautical 
Center Counsel, AMC-7, Federal Aviation Administration, P.O. Box 25082, 
Oklahoma City, OK 73125-4904, or call (405) 954-3296.

SUPPLEMENTARY INFORMATION: By Memorandum dated September 7, 2006, Mr. 
Dean Gerber, Vedder, Price, Kaufman & Kammholz, P.C., wrote to the FAA 
about a default on a secured transaction which resulted in foreclosure 
of the owner/lessor's interest in several aircraft. In addition to the 
secured transaction, the aircraft are subject to leases from the 
defaulting owner, as lessor to a third party certificated air carrier. 
The foreclosing party wants the FAA aircraft records to reflect its 
interest in the leases so that transfer of lessor's rights to a new 
owner/lessor can be accomplished. The defaulting party is unwilling to 
deliver an assignment of the leases to the foreclosing party. Absent an 
assignment of lessor's rights in the leases, the foreclosing party has 
been unable to cause FAA aircraft records to reflect its rights in the 
leases.
    The Administrator of the FAA is charged in 49 U.S.C. 44107 with 
establishing a system for recording conveyances that affect an interest 
in a U.S. civil aircraft. Part 49 of the Federal Aviation Regulations--
Recording of Aircraft Titles and Security Documents provides that 
leases are conveyances (see 49 U.S.C. 40101(a)(19), 14 CFR 
49.17(a)(1)). Section 39.17(d) of the Regulations provides for 
recording of consensual assignments of conveyances such as security 
documents and leases. However, in default situations, the Regulations 
only provide for recording of a Certificate of Repossession, FAA Form 
8050-4, or its equivalent, addressing ownership of an aircraft (14 CFR 
47.11(b)). When the repossessed aircraft remains subject to a lease, 
there is no apparent way for a repossessing party to record its 
interest in the lease. To address this problem, Mr. Gerber's memorandum 
included a proposed transfer statement under the Uniform Commercial 
Code (UCC) section 9-619 as a mechanism by which a foreclosing secured 
party can cause the record to reflect its rights in leases.
    Section 9-619 of the UCC provides that a properly presented 
transfer statement ``entitles the transferee to the transfer of record 
of all rights of the debtor in the collateral specified in the 
statement in any official filing, recording, * * * system * * *'' 
Further, section 9-619 provides that upon proper presentation, the 
official responsible for maintaining the system shall accept the 
transfer statement and promptly amend its records to reflect the 
transfer. That ``official'' in the context of Mr. Gerber's request 
would be the FAA Aircraft Registry.
    The FAA has determined that in appropriate circumstances, transfer 
statements may be recordable instruments. However, users are reminded 
that the validity of transfer statements is determined under the 
applicable state law, i.e., State adoptions of Section 9-619 of the 
UCC.
    Accordingly, the FAA publishes, as an attachment, its response to 
Mr. Gerber.

    Issued in Washington, DC, on November 13, 2006.
Rebecca MacPherson,
Assistant Chief Counsel for Regulations.

Attachment

October 6, 2006.

Dean A. Gerber, Esq.
    Vedder, Price, Kaufman & Kammholz, P.C., 222 North LaSalle Street, 
Chicago, IL 60601.

Dear Mr. Gerber:
Legal Opinion--Lease Assignments Through the Use of Transfer Statements
    This responds to your request for an opinion whether the Federal 
Aviation Administration (FAA) will consider utilization of a transfer 
statement for purposes of assigning (on the record) the rights of the 
aircraft owner in existing leases to the Indenture Trustee; and whether 
a transfer statement under Uniform Commercial Code section 9-619 is 
eligible for recording as a stand-alone document.
    As an attachment to your request, you provided a draft proposed 
Transfer Statement and its Attachment A. The proposed Transfer 
Statement appears to contain all of the provisions required by Uniform 
Commercial Code Section 9-619 including the statement ``By reason of 
such past-default remedies, the Indenture Trustee has acquired the 
rights of the Owner Trustee as lessor under the Existing Lease and is 
now considered the `Lessor' under the Existing Lease * * *.''
    Briefly, the facts underlying your request are as follows: The 
registered owner of the aircraft has defaulted under a recorded 
security agreement. The collateral under that security agreement is the 
aircraft and various leases of the aircraft to a certificated air 
carrier, as lessee. You acknowledge that ownership of the aircraft can 
be affected by repossession and foreclosure evidenced by the filing of 
a Certificate of Repossession under 14 CFR Sec.  47.11. However, your 
client seeks a way to evidence of record its accession to the rights of 
the registered owner (the Lessor) in the leases and subsequently be 
able to record an assignment of that interest from the Indenture 
Trustee to the new aircraft owner.
    By way of background, the Administrator of the Federal Aviation 
Administration is charged with establishing a system for recording 
conveyances, including leases that affect an interest in a U.S. civil 
aircraft. (See 49 U.S.C. 40102(a)(19), 44107; 14 CFR 49.17(a)(1).)
    Part 49 of the Federal Aviation Regulations contains provisions for 
recording assignments of those conveyances. However, where such 
assignment is not feasible as sometimes occurs in a default situation, 
there are no regulatory provisions to provide notice to system users of 
the transfer when the collateral involved is a lease. Although a 
transfer statement has definite structure and effect it is not the type 
of assignment contemplated by 14 CFR 49.17(d)(3).\1\
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    \1\ 14 CFR 49.17(d)(3)--The following rules apply to conveyances 
executed for security purposes and assignments thereof: An 
assignment of an interest in a security agreement must be signed by 
the assignor and, unless it is attached to and is a part of the 
original agreement, must describe the agreement in sufficient detail 
to identify it, including its date, the names of the parties, the 
date of FAA recording, and the recorded conveyance number.
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    Recognizing that dilemma, the drafters of the Uniform Commercial 
Code (UCC) introduced a mechanism by which a repossessing party can 
evidence its rights in collateral such as leases. UCC section 9-619 
Transfer of Record or Legal Title,\2\ introduces the transfer statement 
as follows:
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    \2\ The 2000 revisions to Article 9 have been adopted by all 50 
states, the District of Columbia and the Virgin Islands (ULA UCC 
Refs & Annos, Westlaw).

    (a) [``Transfer statement.''] In this section, ``transfer 
statement'' means a record authenticated by a secured party stating:
    (1) That the debtor has defaulted in connection with an 
obligation secured by specified collateral;
    (2) That the secured party has exercised its post-default 
remedies with respect to the collateral;
    (3) That, by reason of the exercise, a transferee has acquired 
the rights of the debtor in the collateral; (emphasis added) and
    (4) The name and mailing address of the secured party, debtor, 
and transferee.
    (b) [Effect of transfer statement.] A transfer statement 
entitles the transferee to the transfer of record of all rights of 
the debtor in the collateral specified in the statement in any 
official filing, recording, registration, or certificate-of-title 
system covering the collateral. If a transfer statement is presented 
with the applicable fee and request form to

[[Page 67009]]

the official or office responsible for maintaining the system, the 
official or office shall:
    (1) Accept the transfer statement;
    (2) Promptly amend its records to reflect the transfer; 
(emphasis added) and
    (3) If applicable, issue a new appropriate certificate of title 
in the name of the transferee.
    (c) [Transfer not a disposition; no relief of secured party's 
duties.] A transfer of the record or legal title to collateral to a 
secured party under subsection (b) or otherwise is not of itself a 
disposition of collateral under this article and does not of itself 
relieve the secured party of its duties under this article.
    I have also considered the Official Comments of the UCC drafters 
wherein they explain the intent of UCC 9-916:
    Transfer of Record or Legal Title. Potential buyers of 
collateral that is covered by a certificate of title (e.g., an 
automobile) or is subject to a registration system (e.g., a 
copyright) typically require as a condition of their purchase that 
the certificate or registry reflect their ownership. In many cases, 
this condition can be met only with the consent of the record owner. 
If the record owner is the debtor and, as may be the case after the 
default, the debtor refuses to cooperate, the secured party may have 
great difficulty disposing of the collateral. (emphasis added)
    Subsection (b) provides a simple mechanism for obtaining record 
or legal title, for use primarily when other law does not provide 
one. (emphasis added) Of course, use of this mechanism will not be 
effective to clear title to the extent that subsection (b) is 
preempted by federal law. Subsection (b) contemplates a transfer of 
record or legal title to a third party, following a secured party's 
exercise of its disposition or acceptance remedies under this Part, 
as well as a transfer by a debtor to a secured party prior to the 
secured party's exercise of those remedies. Under subsection (c), a 
transfer of record or legal title (under subsection (b) or under 
other law) to a secured party prior to the exercise of those 
remedies merely puts the secured party in a position to pass legal 
or record title to a transferee at foreclosure. A secured party who 
has obtained record or legal title retains its duties with respect 
to enforcement of its security interest, and the debtor retains its 
rights as well.
    3. Title-Clearing Systems Under Other Law. Applicable non-UCC 
law (e.g., * * *, federal registry rules, or the like) (emphasis 
added) may provide a means by which the secured party may obtain or 
transfer record or legal title for the purpose of a disposition of 
the property under this Article. The mechanism provided by this 
section is in addition to any title-clearing provision under law 
other than this Article.

    After due consideration of these facts, provisions and comments, it 
is my opinion that the FAA will consider utilization of a transfer 
statement as contemplated by Section 9-619 of the Uniform Commercial 
Code for purposes of transferring the rights of the aircraft owner, as 
Lessor, to the Indenture Trustee in existing leases.
    Further, your proposed transfer statement is eligible for recording 
as a stand-alone document because it is a conveyance affecting an 
interest in a civil aircraft of the United States in that it affects an 
interest in a recorded lease between Wells Fargo Bank and Northwest 
Airlines concerning operational control of aircraft.
    Be advised that for purposes of transferring ownership of an 
aircraft FAA will not consider a transfer statement a substitute for a 
Certificate of Repossession or its equivalent under 14 CFR 47.11

Sincerely,

Joseph R. Standell
Aeronautical Center Counsel
[FR Doc. 06-9250 Filed 11-16-06; 8:45 am]
BILLING CODE 4910-13-M