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Opinions of Thursday, 24 April 2014

Columnist: Adjekum, Odadie Kwasi Okatakyie

The N604EP Saga, Trusteeship-Lessee Issues

and Implications for Ghana- My Perspective

There has been much hullabaloo about the an American registered aircraft ( N604EP) which was supposed to be carrying a high powered government/business delegation from Ghana (?) flying into and landing at Tehran the capital of Iran. There has been bantering from the political opponents of the government on how an aircraft belonging to a private entity, could be chartered (?) to fly government officials on bilateral business meetings (?). The lessee (Engineers and Planners) of the aircraft (N604EP) is a company owned by one Ibrahim Mahama, a brother to President Mahama of Ghana has countered the accusation by issuing a press release that the delegation was not a government delegation, but Ghanaian businessmen on a private investment tour. There has also arisen, the issue of how to deal with the political ramifications of an American registered aircraft flying to Tehran, capital of Iran which has been under and continue to suffer the full brunt of an American economic sanction.

Trustee and Lessee arrangement in the US-. Ramifications of the N604EP saga

What are the future ramifications of getting trustees for international investors, like Engineers and Planners who intend to acquire aircraft from the United States of America (US)? How does one juxtapose the interest of lessee of US registered aircraft and US restrictions on any form of direct flights of US registered aircraft into countries like Iran and North Korea, which are under US economic sanctions? How does the whole scenario play out in light of International registrations of aircraft and protocols like the Convention on International Interests in Mobile Equipment commonly referred to as The Cape Town Convention (aircraft equipment) of which the United States has ratified ? In the US, the Federal Aviation Administration (FAA) has been designated as the entry point at which information required for registration in respect of airframes or helicopters pertaining to civil aircraft of the United States or aircraft to become a civil aircraft of the United States are to be transmitted.

Trustee and Lessee partnership in the US

One would like to know what all this hullabaloo about trustship and lessee is all about and how does it play out operationally. An aircraft trust is basically a relationship where a trustee owns an aircraft on behalf of an entity or individual. The trust is established as an extension of the true owner, also called the trustor or trust beneficiary. The trustee acts for the beneficiary and the aircraft is titled and registered in the name of the trustee. This relationship is often called an owner trust because the benefit of the trust and all assets go to the true owner of the trust. It is important to note that this structure has been approved by the FAA and, because of the documents that are filed, the FAA is well aware of the identity of the beneficiary. So in the case of N604EP, federal aviation records show the plane is held in a trust by the Bank of Utah. Bank of Utah acts as a trustee for investors like Engineers and Planners (E&P) who have a financial stake in the plane.
Benefits of Trustee and Lessee partnerships
Trusteeship aids international investors like E&P to obtain FAA registration. It is a very flexible and readily accepted vehicle and literally thousands of aircraft are FAA registered through trusts. A trust is easy to establish and can be completed in two or three days; it can be undone just as easily. It is a vehicle designed to simplify certain aspects of aircraft ownership, and for many international investors and business entities, it is by far the easiest and cheapest way to obtain FAA registration. Owner trusts may be established for a variety of purposes, including FAA registration, structural purposes, simplification purposes or convenience.
One of the main reasons for establishing a trust is that a foreign citizen, limited partnership or other party which does not qualify for FAA registration on its own can use a trust to get a valid registration for its aircraft. The FAA is a desirable registry, is widely accepted and generally assures a higher resale value for aircraft that remain US registered.
Many foreign parties operate aircraft within the US, and many foreign investors own aircraft being leased to or otherwise operated by US carriers. These situations will necessitate some sort of accommodation for registration purposes, and a trust is the simplest and probably the least expensive way to accomplish this. FAA records reflect the trustee as the titled and registered owner, rather than the true owner or beneficiary, which makes it more challenging for a third party to determine who really owns the aircraft.
A trust can be used to maintain FAA registry for a short, long or indefinite period of time. It is commonly used to export an aircraft or to have refitting done before export. It can be used by a party not qualified for FAA registration to maintain a registration for as long as they like. The trust will place a step between the true owner of the aircraft and the asset itself and the aircraft will not be registered to the true owner, if you consider those to be negatives. All correspondence from the FAA, including airworthiness directives, will be sent to the trustee, which will then forward the information to the beneficiary.
Responsibilities of Engineers and Planners (E&P) as Lessee of N604EP
The beneficiary in this case E&P owns the beneficial interest in the trust and the trustee owns the aircraft on behalf of the beneficiary. The trustee is the titled and registered owner of the aircraft, but the beneficiary has the right to dissolve the trust at any time for any reason. Title to the aircraft can be transferred at any time from the trustee to any party designated by the beneficiary, including itself, via an FAA form bill of sale. Pursuant to the terms of the trust agreement, the trustee cannot sell the aircraft without the beneficiary's direction.
As part of the conditions and requirements of the Trust-Lessee arrangement between the bank of Utah (Trustee) and E&P (Lessee), normally, E&P shall have the exclusive right to possess, use and operate the aircraft. Thus E&P as part of the whole arrangement are supposed to operate the aircraft in accordance with any applicable vendor's or manufacturer's manuals or instructions by competent and duly qualified personnel only and in accordance with all applicable governmental rules and regulations, including, without limitation, the rules and regulations of the United States Federal Aviation Administration.

Political and Legal entanglement of the N604EP flight to Iran
I am no aviation legal expert, but based on my research, it would be lack of discretion on the part of E&P (If they did not seek prior authorization from US authorities) and can turn the waters murky for E&P. For an American registered aircraft to fly into Iran, the Lessee or operator will normally require under United States law, prior approval from the Treasury Department’s Office of Foreign Assets Control, the federal government’s primary enforcer of sanctions against Iran. This will have to be done to avoid violating a complicated patchwork of rules governing trade. If E&P or the Trustees did not seek the authorization from the department, then it could possibly face some sanctions.
There is also another complication involving the need for clearance from the US Commerce Department, since of this particular aircraft is powered by engines made by General Electric a US company and as part of the whole sanctions package, require prior authorization for US-made parts to touch down on Iranian soil.
Official Executive Travel and the Implications of the N604EP Saga in Ghana
Normally in Ghana, The President and governmental delegation are transported on the bill of the government of Ghana and most at times flown by the VIP/VVIP squadron of the Ghana Airforce, for meetings all over the world. That is done if the trip is deemed feasible and cost effective. There have been cases, where due to service exigencies and other operational contraints, such delegations have utilised normal commercial air transport. Presidents both past and present have at one time or the other utilised commercial transport and chartered aircraft for official travels abroad. This is very normal and could happen when the Ghana Air force has to undertake routine checks/maintenance on the executive fleet of aircraft.
There has been controversy over the delegation that went to Tehran, as to whether they were officially representing the government of Ghana on bilateral trade talks or they were private businessmen with very strong government appendages and as such could flout themselves as representatives for and on behalf of the government of Ghana. The Iranian government maintains that the delegations comprised of Ghana government functionaries, while E&P denies it. If they were bona-fide government officials, I see no problem if they went on a bilateral trade meeting to Iran.
My issue will be with why of all the means of air transportation available, use an aircraft that belongs to the company of the brother of a sitting president and registered in the US to make a trip to Iran? How much was expended as operational cost in terms of the charter, fuel, overflight and navigational charges, per diem and lodging for crew, catering and airport parking and handling charges? Did the money come from the consolidated funds and does it not raise issues of conflict of interest? Why were other Ghanaian operators like AWA and Starbow not given the opportunity to bid in such a proposition? Or as usual it was a case of sole sourcing?
I personally think that we would do our local aviation industry a lot of good ,if in future such task and opportunity is extended to local operators, so that we avoid such embarrassing international debacle, that has graces the international media landscape and sought to put Ghana in a negative light. Our elected officials and government functionaries should exercise discretion and prudence in issues like these and do some due diligence. I guess if it had been AWA or Starbow that did the trip; we would not have been in this embarrassing fix.
Sources: http://www.nytimes.com/2014/04/18/world/middleeast/mystery-shrouds-american-plane-at-tehran-airport.html?_r=0
http://www.unidroit.org/instruments/security-interests/aircraft-protocol
Practitioners’ Guide to Cape Town Convention and Aircraft Protocols November 2012.
Odadie Kwasi Okatakyie Adjekum
kadjekum@yahoo.com