November 2008

International Aviation Transactions: Compliance With U.S. Export and Embargo Restrictions

Holland & Knight Newsletter
Jonathan M. Epstein

This article is the first in a series on international aviation transactions and is limited to U.S. export controls. Subsequent articles will attempt to address the myriad of other particular considerations that can arise in an international aviation transaction including inter alia, airworthiness certification process (e.g., obtaining export certificates of airworthiness), tax considerations, aircraft registration, perfection of title to aircraft and engines, and customs and other issues in permanently importing foreign aircraft into the U.S.

Because of the perception that there are only limited export controls on most civil aircraft, consideration of U.S. export laws often is given scant attention in many international transactions. This is true particularly in the business aviation industry where sellers of used aircraft may not routinely engage in export transactions; it is also critical for foreign owners of U.S. origin aircraft, who may not understand how the U.S. government exerts jurisdiction over aircraft even after they are sold abroad. However, the recent rash of U.S. enforcement actions against both U.S. and foreign persons highlights the need for both U.S. and, where applicable, foreign companies to understand and comply with U.S. export restrictions. This article provides a brief summary of these restrictions and recent developments in this area.

Scope of U.S. Export Restrictions

There are a number of overlapping export regulatory regimes that come into play in international aircraft transactions:

General Export Restrictions on U.S. Products

Most civil aircraft, aircraft engines and aviation components are controlled for export purposes by the Department of Commerce Bureau of Industry and Security (BIS) under the Export Administration Regulations (EAR). BIS classifies these aviation products and technology depending on whether they have potential dual-use civil and military applications. These regulations apply to all civil aviation products in the United States and to U.S. origin aviation products, even after they are exported from the U.S. For example, the reexport of a Gulfstream aircraft from one foreign country to another remains subject to the EAR. Further, foreign manufactured aviation products will be considered of “U.S. origin” for export purposes if they contain more than de minimus U.S. content.1 The following general rules apply to the civil aviation industry:

Permanent Exports

In general, most civil aircraft, aircraft engines and aviation components can be permanently exported, or reexported (i.e., sold or leased) to most entities in most countries without a license. However, exports and reexports are generally prohibited:

  • to embargoed countries (e.g., Cuba, Iran, Syria, Sudan, North Korea)
  • to persons or entities specially designated by the U.S. government on various barred entity/persons lists
  • if the exporter knows or has reason to know the product will be used in certain unlawful uses, such as the development of weapons of mass destruction, or, in the case of China, a military end-use (see Recent Developments below)

In addition, certain avionics, such as inertial navigation systems, altimeters, night vision equipment and radars, when exported separately (i.e., not incorporated into a civil aircraft) may require a license to in order to export to certain countries.

Temporary Sojourns

Most scheduled, on-demand charter and private aircraft flights where there is no transfer of ownership or control of the aircraft are considered “temporary sojourns” under the EAR and generally are allowed.2 (Note that wet leases such as long-term charters and ACMI (Aircraft, Crew, Maintenance and Insurance) agreements are unlikely to qualify as temporary sojourns.) The rules regarding flights of U.S. origin aircraft to embargoed countries are complex and implicate embargo regulations as well. (See Recent Developments below.)

U.S. Embargoes and Other Sanctions

The U.S. Treasury Department Office of Foreign Assets Controls (OFAC) enforces U.S. embargo restrictions on a number of countries, including Cuba, Iran, Syria, Sudan, and North Korea,3 as well as maintains a list of Specially Designated Nationals (SDNs), consisting of persons and entities identified as supporting terrorism, narcotics trafficking, or otherwise identified with an embargoed regime. In general, these embargoes prohibit U.S. persons and entities in the U.S. from:

  • engaging in transactions with embargoed countries or designated entities4
  • facilitating transactions by third parties with embargoed countries or designated entities (for example, by loaning funds, brokering, or insuring an aircraft involved in such a transaction)

Foreign persons are also subject to these regulations to the extent there is a U.S. nexus. In particular, with certain exceptions, foreign persons are generally prohibited from exporting or reexporting U.S. origin goods to these embargoed countries.

Goods Controlled as “Military” Items

Military aircraft, including certain former military aircraft, and military derivative engines and components are strictly controlled for export purposes under the International Traffic in Arms Regulations (ITAR), which is administered by the U.S. State Department Directorate of Defense Trade Controls (DDTC).
While this regimen is not applicable to most civil aircraft, it has and remains a significant issue with regard to (i) certain aircraft engines and associated systems; (ii) former military aircraft (such as certain utility helicopters); and (iii) aircraft which has been modified for a military purpose by installing systems such as missile defense systems. (See Recent Developments below.) In particular, unlike the Commerce Department, the State Department takes a “look through” approach and even a relatively minor piece of military origin equipment will cause the entire aircraft to be ITAR-controlled.
ITAR classification means that the exporter must be registered and, in most cases, that it needs to obtain a license from the State Department. In addition, entities such as lenders, equipment finance companies, or trustees that have an ownership interest or hold title to the aircraft or engine may be required to register as “arms brokers” with the State Department as well.5

Recent Developments

Enforcement Focus on Aviation Industry

Over the last year, the U.S. government has initiated a number of investigations and enforcement actions designed to prevent Iran from obtaining U.S. origin aircraft, engines, and aviation components. BIS and OFAC have targeted aviation parts suppliers both in the U.S. and overseas, in transactions where aviation parts were allegedly ultimately destined for Iran. In addition, BIS has targeted foreign air carriers and aircraft owners/lessors, for allegedly attempting to sell, lease, or charter aircraft to Iranian airlines.
Even in situations where the exporter has no knowledge of a subsequent reexport to Iran, investigations of U.S. persons can be invasive and disruptive. In addition, funds transfers may be blocked or rejected and designation of entities can have serious repercussions not only on a designated entity, but also on lenders, lessors and other business partners.

China Military End-use Rule

In the summer of 2007, BIS expanded the types of civil products, requiring a license for export to the People’s Republic of China (PRC). The rule applies if the U.S. exporter actually knew or should have known that the product was going to a military end-use in the PRC. This places a duty on exporters to conduct due diligence as to the end-use. Among other products, this rule applies to civil aircraft, aircraft gas-turbine engines, and certain aeronautical communication and navigation systems, and components and parts thereof, that prior to issuance of this regulation could generally be exported without a license to most countries and entities, except embargoed countries and certain prohibited end-users/end-uses.

Clarification of When Aircraft Parts Are Subject to ITAR

In August 2008, the State Department published rules seeking to provide some clarity as to when an engine or aircraft component would be controlled as a military item under ITAR versus as a “dual-use” item under EAR.6 Basically, the rules state that:

  • if designed exclusively for civil (non-military) aircraft, aircraft engines and aviation components will be controlled under the “dual-use” EAR regime
  • if designed for military aircraft or military aircraft engines, an aviation part or component will be controlled under the ITAR
  • if the part or component does not fall in one of the above (such as components that are to be used on civil and military variants of the same basic engine), the test gets more complex. In general, if the part or component is (i) “standard equipment”; (ii) covered under an FAA type certificate or supplemental type certificate (excluding certain military commercial derivative aircraft); and (iii) forms an integral part of such aircraft, then generally it will be controlled under the EAR as a “dual-use” item. However, certain new design components including hot section components such as blades, vanes, discs, full authority digital engine controls and digital electronic engine controls will require advance classification by the State Department.7

Tips for Complying With U.S. Export and Embargo Restrictions

The following are several steps that U.S. companies, as well as foreign companies engaged in transactions involving U.S. origin aircraft, engines, or components, should consider:

Establish Procedures

For companies that routinely engage in export transactions, preparation of procedures for classification, due diligence and export clearance is recommended. For some companies, this may take the form of a detailed export compliance manual, while for others short guidelines tailored to the types of transactions the company undertakes may be sufficient.

Due Diligence/Screening of Customers

In addition to screening customers to ensure they are not from embargoed countries or on one of the U.S. government’s barred entity lists, exporters should take additional steps to verify who the end-user of the aircraft or aircraft component will be. The level of diligence will depend on the nature of the transaction and the potential risk. For example, in a lease transaction, the lessor should vet the parent and affiliated companies of the lessee. In international parts transactions, due diligence can be difficult, particularly where middle-men may not wish to identify their customer for competitive reasons. Nevertheless, U.S. export law requires identification of the ultimate-consignee, so except for inventory sales, the parts broker should not be listed as the ultimate-consignee.

Contractual Requirements/Customer Certification



Companies should review export control warranty and representation language in their contracts, and consider use of separate customer certification forms. These provide some protection to the exporter and put the customer on notice of U.S. restrictions.

Export Clearance



The permanent export of aircraft for sale or lease abroad (even under its own power) is treated like any other export of goods, and certain customs, declarations and procedures must be followed. Certain exports such as ITAR products, and certain civil electronics such as inertial navigation systems, may require licensing, and virtually all permanent exports will require an Electronic Export Information (EEI) filing in advance of the export.



1 See 15 C.F.R. § 734.4

2 See 15 C.F.R. § 740.15

3 Note that in the case of North Korea and Syria, the restrictions are primarily administered and enforced under the EAR by the Department of Commerce.

4 With respect to the Cuba embargo, this also restricts foreign entities owned or controlled by U.S. persons.

5 See 22 C.F.R. Part 129 (regarding brokering of arms).

6 Final Rule, Amendment to the International Traffic in Arms Regulations: The United States Munitions List Category VIII, 73 Fed. Reg. 47523.

7 Such items have been reclassified as “significant military equipment” and the manufacturer or other exporter will need to submit to a sometimes lengthy “commodity jurisdiction” review process.

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