aircraft buyer

  • NAFA Administrator posted an article
    Becoming a Prepared Buyer: Aircraft Acquisition see more

    NAFA member, Amanda Applegate, Partner at Aerlex Law Group, discusses aircraft acquisition.

    As we continue to face the “new normal” of traveling during a pandemic, I have been inundated with calls from individuals and companies who are exploring the idea of whole aircraft ownership for the first time. For anyone in the market for an aircraft today or in the near future who would like to make the purchase and closing on an aircraft as efficient and straightforward as possible, please consider taking the following steps prior to making your first offer.

    BUILD YOUR ACQUISITION TEAM EARLY & PRIOR TO THE FIRST OFFER

    Aircraft Broker/Consultant – Select a consultant or broker who knows the global market for the aircraft type you are purchasing. The broker/consultant must also be respected among his peers. There are certainly instances when an offer is not taken as seriously if the broker representing the buyer lacks experience with the particular category of aircraft being sought or has had previous conflicts with the broker on the other side. If international aircraft are going to be considered, be sure the Aircraft Broker/Consultant takes into consideration the quarantine rules where the aircraft is located and/or where the pre-purchase inspection will take place.

    Aviation Counsel – Retain aviation counsel in advance so she is ready to jump into a deal once the aircraft is selected. This will save valuable time later. Including a provision in the Letter of Intent (“LOI”) that the buyer will have an initial draft of the purchase agreement to the seller within three days of signing of the LOI will be very appealing to a seller. But this can only happen if aviation counsel has already been identified, retained, and is up-to-speed on the specifics of the deal. Technical Representative – Hire the right technical expert so that he is ready to start immediately once the aircraft is identified. The technical representative will review aircraft maintenance records and identify any inspection items that must be rectified. The technical representative can also help determine which aircraft is the best aircraft to make an offer on, based on aircraft pedigree. Be sure that the technical representative is willing to travel during the pandemic in order to be able to oversee the pre-purchase inspection.

    Lender – As in all transactions, sellers prefer cash deals. But if the aircraft is going to be financed, contact lenders and select a lending partner before a specific aircraft is chosen so that lenders are able to close quickly once the aircraft is identified.

    Management Company – Is the aircraft going to be managed by a third-party provider? Will charter be allowed on the aircraft when not being used by the aircraft owner? Selection of a management company early in the process means you will have the management company acting as your advocate throughout the acquisition. Many management companies don’t start charging management fees until the aircraft is acquired, so you may get valuable advice from the management company at little cost by selecting a management company early in the process.

    Insurance Broker – Decide if the insurance will be procured through the management company or if you need an insurance broker to provide the comprehensive coverage to diminish liability concerns.

    Escrow Agent – Identify your escrow agent and obtain their wire instructions so you are ready to send a deposit as soon as you have an accepted LOI. This demonstrates to the seller that you are a committed buyer.

    ESTABLISH YOUR OWNERSHIP AND OPERATING STRUCTURE

    Your aviation counsel can help you determine the following: What entity will own the aircraft? Does the proposed structure make the most sense, based on the intended use of the aircraft and the potential tax implications for those who will use the aircraft? Is the ownership structure legal under the Federal Aviation Regulations?

    Retain a qualified aviation tax attorney and CPA who can review the ownership structure to make sure it is the best tax-plan available. What are the sales and use tax consequences of the ownership structure? Are there adequate liability protections under the ownership structure or at least adequate insurance for all parties involved in the ownership structure?

    DON’T SWEAT THE SMALL STUFF

    There are a number of miscellaneous items that often get negotiated in the LOI and purchase agreement. These items comprise a small amount of the overall transaction cost, and having flexibility on them may make your offer stand out. Understanding the cost of these items and your position on them before the LOI may allow your offer to appear more competitive than another offer. One approach is to have the seller pay all of these costs and then adjust the purchase price higher since that is the number the seller will most likely focus on. Some of the small items are Escrow Fees, Aircraft Movement Costs, Customs and Registration Change Fees (if applicable), and Registration Number Change Fees.

    Spending time and effort at the beginning of the aircraft acquisition process to prepare as much as possible, can lower the naturally-occurring stressors related to aircraft transactions and make you a more attractive buyer.

    This article was originally published in BusinessAir Magazine, August 2020, Volume 30, No. 8.

  • NAFA Administrator posted an article
    An Aircraft's Final Sale see more

    NAFA member, Amanda Applegate, Partner with Aerlex Law Group, discusses the process for the final sale of an aircraft.

    As more aircraft reach the end of their useful life, understanding the process for the final sale of an aircraft is becoming more important. If there are no buyers for an aircraft or if an aircraft is more valuable for its parts than as a whole unit, then the aircraft owner should endeavor to find the best possible solution for the aircraft’s final sale. Depending on the aircraft type and the parts inventory at the time, there may be multiple interested buyers for the parts of the aircraft. Once the best offer is found, a sale agreement should be drafted and include all of the necessary deal points. For the final sale of an aircraft, there are additional deal points that don’t apply to a normal sale. Here are a few to consider:

    • Is the delivery location going to be the same location as where the aircraft will be parted out? If so, then will the aircraft be deregistered at the time of sale? If so, the sale agreement should not require the purchaser to prepare and file a registration application, but instead file a deregistration notice with the FAA. However, if there is any chance that the purchaser will not part out the aircraft and may instead resell the aircraft, then the deregistration request should not be filed.
    If you file the deregistration notice with the FAA it is very difficult to then register the aircraft again at a later date and requires filing proof acceptable to the technical branch of the FAA that the aircraft is still airworthy.
    • A detailed list of the loose equipment that is being sold on the aircraft should be attached as an exhibit to the sale agreement. For example, is the aircraft being sold with the china, glassware and flatware on the aircraft or does the seller plan to reuse the china on a future aircraft? Does it include any equipment that was used in the hangar for the aircraft, like a tow bar?
    • Is the aircraft airworthy and/or are there inspections that are past due? Usually a sale agreement would require the aircraft to be airworthy. However, that may not be necessary in the case of a final sale. If there are inspections that are past due, then the inspections may not be necessary if the aircraft is already at the location where it will be sold and parted out. However, if the aircraft is not at the closing location or has to be flown after closing to the location where it will be disassembled, then one of the parties may need to obtain a ferry permit. The cost of the ferry permit should be measured against the cost of doing the necessary work on the aircraft in order to make it airworthy.
    • The aircraft records, especially burn certificates, are very important when selling an aircraft for parts. The records need to be complete for each part so that the part can be sold and used again. If the records are incomplete the part will have far less or perhaps no value.
    • Is it important that the seller retain the registration number? Unlike when an aircraft is being sold and will continue to fly, if the aircraft is being deregistered, there is no need to file a request to change the registration number at the time of closing. Instead, when the deregistration is filed, a request to reserve the registration number back to seller should also be filed. If the purchaser doesn’t plan to deregister the aircraft immediately, the parties should agree on a timeline to return the registration number back to the seller.
    • The pre-purchase inspection is far less extensive for an aircraft that will be sold for parts. It is not always as important that all systems be fully functional and therefore the timeline from execution of the sale agreement to closing is more compressed, because the inspections prior to closing may just be a review of the aircraft records and not a fully survey of the aircraft.

    Making a decision to sell an aircraft for parts, can be an emotional decision for an aircraft owner because they have often times flown in the aircraft for many years, arriving in many locations with lasting memories. The emotional impact is greater when the aircraft is being sold for parts instead of to someone else who will use it. As a result, the emotional component can sometimes prevent the best business decision from being made. As an example, I have had a client who searched for someone to buy the aircraft for reuse and sold the aircraft at a lower price than could have been achieved if they had considered selling the aircraft for parts.

    When an aircraft is sold for the final time, there are differences in the sale process. The delivery location is far more important, as is loose equipment list and complete aircraft records. Be sure to take the differences into account when entering into the sale agreement.

    This article was originally published by Aerlex Law Group on April 9, 2020 in Articles, BusinessAir Magazine, The Latest.

  • Tracey Cheek posted an article
    Preparing for an Aircraft Purchase: How to Become the Most Prepared and Qualified Buyer see more

    NAFA member, Amanda Applegate, Partner at Aerlex Law Group, shares tips on how you can become the most prepared and qualified buyer when purchasing an aircraft.

    As the supply for quality pre-owned aircraft inventory has begun to shrink (especially in certain large cabin models), I see more buyers devoting time to advance preparations to ensure that they are perceived by sellers as the most qualified, attractive buyer. If you are in the market for an aircraft and want to expedite your purchase and closing, consider taking the following steps prior to making your first offer.

    BUILD YOUR ACQUISITION TEAM EARLY & PRIOR TO THE FIRST OFFER
    Aircraft Broker/Consultant – Select a consultant or broker who knows the global market for the aircraft type you are purchasing. The broker/consultant must also be respected among his peers. There are certainly instances when an offer is not taken as seriously if the broker representing the buyer lacks experience with the particular category of aircraft being sought or has had previous conflicts with the broker on the other side.

    Aviation Counsel – Retain counsel in advance so she is ready to jump into a deal once the aircraft is selected. This will save valuable time later. Including a provision in the Letter of Intent (“LOI”) that the buyer will have an initial purchase agreement to the seller within three days of signing of the LOI will be very appealing to a seller. But this can only happen if aviation counsel has already been identified, retained, and is up-to-speed on the specifics of the deal.

    Technical Representative – Hire the right technical expert so that he is ready to start immediately once the aircraft is identified. The technical representative will review aircraft maintenance records and identify any inspection items that must be rectified. The technical representative can also help determine which aircraft is the best aircraft to make an offer on, based on aircraft pedigree.

    Lender – As in all transactions, sellers prefer cash deals. But if the aircraft is going to be financed, contact lenders and select a lending partner before a specific aircraft is chosen so that lenders are able to close quickly once the aircraft is identified.

    Management Company – Is the aircraft going to be managed by a third-party provider? Will charter be allowed on the aircraft when not being used by the aircraft owner? Selection of a management company early in the process means you will have the management company acting as your advocate throughout the acquisition. Many management companies don’t start charging management fees until the aircraft is acquired, so there is valuable advice available at little cost by selecting early.

    Insurance Broker – Decide if the insurance will be procured through the management company or if you need an insurance broker to provide the comprehensive coverage to diminish liability concerns.

    Escrow Agent – Identify your escrow agent and obtain their wire instructions so you are ready to send a deposit as soon as you have an accepted LOI. This demonstrates to the seller that you are a committed buyer.

    ESTABLISH YOUR OWNERSHIP STRUCTURE

    Your aviation counsel can help you determine the following: What entity will own the aircraft? Does the proposed structure make the most sense, based on the intended use of the aircraft and the potential tax implications for those who will use the aircraft? Is the ownership structure legal under the Federal Aviation Regulations?

    Retain a qualified aviation tax attorney and CPA who can review the ownership structure to make sure it is the best tax-plan available. 

    What are the sales and use tax consequences of the ownership structure?

    Are there adequate liability protections under the ownership structure or at least adequate insurance for all parties involved in the ownership structure?

    DON’T SWEAT THE SMALL STUFF

    There are a number of miscellaneous items that often get negotiated in the LOI and purchase agreement. These items comprise a small amount of the overall transaction cost, and having flexibility on them may make your offer stand out. Understanding the cost of these items and your position on them before the LOI may allow your offer to appear more competitive than another offer. One approach is to have the seller pay all of these costs and then adjust the purchase price higher since that is the number the seller will most likely focus on. Some of the small items are Escrow Fees, Aircraft Movement Costs, Customs and Registration Change Fees (if applicable), and Registration Number Change Fees.

    Spending time and effort at the beginning of the aircraft acquisition process to prepare as much as possible, can lower the naturally-occurring stressors related to aircraft transactions.

    Please contact Amanda Applegate at 310-392-5200 or aapplegate@aerlex.com.

    This article was originally published in BusinessAir Magazine, May 2019, Volume 29, No. 5.

  • Tracey Cheek posted an article
    Private Aviation Tax Considerations for Prospective Aircraft Buyers see more

    NAFA member, Essex Aviation, discusses aviation tax considerations for aircraft buyers.

    Acquiring a private aircraft for personal use is an exciting experience, one that opens innumerable doors for frequent travelers — however, to ultimately realize the benefits of your investment, you must first ensure that you’ve fully accounted for all financial considerations, especially aviation taxes.

    Too often, private aircraft owners aren't fully informed of certain taxes that are involved in the ownership and operation of the aircraft; which are important as it relates to their operating budget and the overall aircraft ownership experience. That’s because tax considerations should be structured not only during the initial transaction, but throughout the ownership lifecycle, and can affect how you decide to utilize your aircraft.  

    Read More

    This article was originally published by Essex Aviation.

  • Tracey Cheek posted an article
    Aircraft Documents: an Important Factor when Purchasing an Aircraft see more

    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:

    1. from a seller that has multiple aircraft;
    2. from bankruptcy; or
    3. 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.

    This article was originally published in BusinessAir Magazine and in AERLEX Articles on February 28, 2018.