NAFA member, David G. Mayer, Partner at Shackelford, Bowen, McKinley & Norton, LLP, discusses the value of due diligence in aircraft transactions.
The value of due diligence exists in the eyes of the beholder. Their place in an aircraft transaction informs their diligence criteria, inquiries, and judgment.
Most financiers consider the five Cs (character, capacity, capital, collateral, and conditions) and investigate each element before closing a loan or lease. Sellers ensure that they transfer good titles to qualified buyers. Aircraft buyers traditionally perform comprehensive due diligence in all phases of a purchase transaction.
However, in the current seller’s market, buyers that require excessive or even customary diligence may cause a seller to kill the deal and move on to another buyer waiting in the wings that may not require the same level of diligence. As a result, some buyers sacrifice diligence to buy an airplane, any airplane.
To initiate due diligence and avoid costly mistakes, buyers should steel themselves; it is hard to be objective, especially for first-time buyers, during the potentially emotional journey of seeing beautiful time machines for sale. Buyers should also engage experienced aviation professionals, including an aircraft broker, technical consultant, aviation counsel, insurance broker, aviation tax expert, escrow company, and FAA counsel.
Starting when a buyer first seriously considers purchasing an aircraft, the buyer should spool up professionals to guide the buyer through the buying experience, in five diligence areas along with financing.
This article was originally published by AINOnline on November 11, 2022.
