NAFA member Amanda Applegate, Partner with AERLEX Law Group, shares the importance of aircraft documents when purchasing an aircraft.
One important component of most aircraft transactions is the gathering and assessment of all pertinent maintenance records for the aircraft (“Aircraft Documents”). Aircraft owners are required to maintain Aircraft Documents in accordance with 14 C.F.R. § 91.417. The regulations strictly dictate how long Aircraft Documents must be kept, but do not mandate the format or forms that must be used. Among many other items, the Aircraft Documents contain any damage history on the aircraft, an important factor in determining the appropriate purchase price for an aircraft.
An aircraft buyer should conduct a comprehensive review of the Aircraft Documents prior to the purchase to ensure that all of the records are accounted for, complete and in good order. The aircraft purchase agreement should not only require that the seller produce all of the Aircraft Documents in its possession, but should also compel the seller to restore any deficient documents so, at the time of closing, all the records are accurate, continuous and current through the closing date.
Additionally, the review of Aircraft Records is especially important during the pre-buy of an aircraft:
- from a seller that has multiple aircraft;
- from bankruptcy; or
- from a seller currently operating only under Federal Aviation Regulations (“FAR”) Part 91, when the buyer’s intent is to operate the aircraft under FAR Part 135 after the purchase.
When an aircraft is purchased from an owner who has multiple aircraft, the Aircraft Documents may have been maintained in a manner that is suited for the specific needs of that aircraft owner and in compliance with the operations of that particular fleet. However, upon the sale, the Aircraft Documents need to be organized in a manner that is appropriate for a single aircraft operation. This conversion process is often labor intensive so it is imperative that the Aircraft Document review start as early as possible during the pre-purchase inspection phase. It is possible that the Aircraft Document review in this scenario will take longer than the physical inspection of the aircraft. Furthermore, when looking for traceability of time-tracked parts or burn certificates that may be missing from the Aircraft Documents, multiple vendors may need to be contacted in order to restore the Aircraft Documents to acceptable standards.
If the aircraft is being purchased out of bankruptcy, the records review is crucial. Once the purchase is completed, the bankruptcy estate has no obligation (and likely no resources) to help locate items that are absent from the Aircraft Documents transferred at closing. Furthermore, if the Aircraft Documents were not secured while the company was going through the chaos of bankruptcy and closure, then it could be the case that the Aircraft Documents are in disarray at the time of inspection.
Finally, if an aircraft that only operates under FAR Part 91 is being sold and the buyer intends for the aircraft to be operated under FAR Part 135, there are certain records that must be included in the Aircraft Documents in order to place the aircraft on a FAR Part 135 operating certificate. For example, if the interior of the aircraft was refurbished and there are no burn certificates for the seats, then the aircraft cannot be placed on a FAR Part 135 certificate. If the aircraft was only operating under FAR Part 91 at the time of refurbishment, the burn certificates may not have been tracked as closely as they should have been at the time of the work. This deficiency must be remedied in order to complete the Part 135 conformity check.
If, during the inspection, it is discovered that certain Aircraft Documents have been lost, stolen and/or destroyed, then it should be a condition of the purchase agreement that the buyer has the right to terminate the purchase agreement. If the parties want to move forward with the sale, the seller should be required to recreate and restore the missing records. There are companies that specialize in the replacement of Aircraft Documents. The seller should also review its aircraft insurance policy, because the missing records may be covered under that policy.
Ultimately, an aircraft buyer should not purchase an aircraft unless an Aircraft Document review is performed as a condition of the purchase agreement and, if any discrepancies in the Aircraft Documents are found during the course of the inspection, it is the obligation of the seller to fix the discrepancies. If the Aircraft Documents cannot be restored, the buyer should retain the right to terminate the purchase agreement.