NAFA Administrator posted an articleHow is the Coronavirus Affecting the Closing Process for Aircraft? see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses the challenges of aircraft closings during the Coronavirus pandemic.
Unlike real estate, where the exchanged property does not move, the challenge with closing on an aircraft is that eventually it must be flown to its new home. It’s a rare transaction where buyers purchase an airplane from their home airfield. Therefore, how to legally move the aircraft is one major concern for buyers during the coronavirus pandemic. Another is how to get a pre-buy inspection done.
First, there is the sticky problem of getting an aircraft inspected. It’s not clear whether maintenance and repair shops are currently open to perform pre-buy inspections, or whether their employees can even report to work. Some states have not deemed aviation techs “essential.” What jobs are deemed “essential,” how, and by whom such job designations will be enforced remains up in the air. Even if aviation techs are, parts suppliers might not be. That means needed parts may not get delivered. In normal times, a closing might take 30 days. In these abnormal times, plan on the process stretching to 45 days or more.
Beyond that, is it legal for a ferry pilot or the new owner to fly an airplane from the airport where it is hangared to its new home base? State laws vary on the subject. How complicated it will be to transport the aircraft may depend on factors like the route of flight and the number of states involved. Is the airplane going from California to Maine? Or from Wisconsin to Indiana? One has to ask oneself, “Am I going to have a challenge from this state?” Other questions follow, including, “Which governing body would enforce such a challenge — state or federal?” “Is it within FAA or state jurisdiction?” None of that is easy to navigate.
If you can imagine the difficulty of flying from one European country to another and having to deal with the balkanized ATC system there, then you have some idea of the current complexity surrounding moving an aircraft across state lines during this pandemic. At AOPA Aviation Finance, (“AAF”), our advice is to call AOPA’s Legal Services to get better clarity on your specific situation.
That is a great benefit of AOPA, having multiple resources all in one place. This complex situation is the perfect time to tap into them.
Great advice. Great rates. From helpful and responsive reps you can trust. Three good reasons to turn to AOPA Aviation Finance when you are buying an airplane. If you need a dependable source of financing with people who are on your side, just call 800.62.PLANE (800.627.5263), or click here to request a quote.
This article was originally published by AOPA Aviation Finance Company on April 30, 2020.
2018 Aircraft Transactions - Final Quarter Countdown! see more
NAFA member, Amanda Applegate, Partner with Aerlex Law Group, discusses the top 10 items to consider if your aircraft transaction closes in 2018.
As we approach the last quarter of 2018, analytical data and industry experts are predicting a quarter that will be extremely busy with both aircraft purchases and sales. Personally, I have a number of clients who are ready to proceed immediately with a purchase or sale once either the right inventory can be sourced or once a buyer is found for the aircraft that is listed for sale. Assuming the right aircraft can be found for buyers or the right buyer can be found by sellers, as transaction volumes increase those providing support services such as aircraft consultants, insurance agents, escrow companies and pre-buy inspection facilities may start to see the stress of the demand. As always, having a well-established acquisition or sales team and a process plan can help insure that nothing gets missed, that the closings go as planned and are completed in the 2018 calendar year. Ten items to consider to help closing occur in 2018:
1. If you are considering selling in 2018, list the aircraft for sale as soon as possible to allow enough time for the sales process to conclude before the end of the year.
2. If you are considering buying in 2018, you should already be looking for the right aircraft. Inventory is lower in many aircraft categories than it has been for years. Therefore sourcing the right aircraft is taking longer than it has in the past and may require expanding the search to outside of the United States.
3. Many inspection facilities have long wait times to schedule a pre-buy inspection. As soon as an aircraft is sourced or a buyer is found (or perhaps even before), look for a pre-buy slot and try to hold it if possible. As a seller, if certain inspections are coming due, perhaps scheduling these in conjunction with a potential pre-buy inspection may help with reserving a slot.
4. If you have an existing aircraft and plan to replace it, consult your tax team early in the process. Your tax team may recommend that both transactions occur in the same year since 1031 like-kind exchanges are no longer available.
5. If you are seeking depreciation in 2018 (bonus or straight-line), then the aircraft being purchased needs to be placed into service and used for business (preferably exclusively for business if closing is near the end of the year) before the end of the year.
6. When support service providers are busy, checklists and a team leader become imperative. There must be one person leading the team who is checking to make sure all aspects of the transaction are completed prior closing (i.e. assignment of mx. programs, insurance, funds, lender agreements, management agreements, international registry account set up, etc.).
7. The last day of the year in 2018 is on a Monday. In the past, the FAA registry has closed early on holidays and also for weather. It is recommended that 2018 closings be completed no later than December 28, 2018 in order to allow time for the aircraft to be placed into service before year end and avoid any unexpected closings delays that could occur.
8. Lenders are starting to require all ancillary documents be in place prior to funding. If the aircraft is going to be managed, chartered or on maintenance programs, the lender may require all of these documents be in place along with its own consent agreements, prior to closing. It is likely that these documents will not be allowed to be done as post-closing items, so plan enough time to get all relevant documents in order prior to year-end. Alternatively, consider paying cash and arrange financing after closing.
9. If the transaction is a cross-border transaction, make sure all parties are realistic on the amount of time the import/export process will take.
10. Having upgrades done at the same time as the pre-buy inspection often saves downtime on the aircraft for the buyer. However, it may also push the closing into 2019. Therefore, if a 2018 closing is important a close review of the calendar should be made to make sure the upgrades can be completed and the aircraft returned to service prior to the end of the year.
Please contact Amanda Applegate at 310-392-5200 or email@example.com.
Risks and benefits of doing aircraft upgrades prior to closing. see more
NAFA member, Amanda Applegate, Partner at Aerlex Law Group, discusses the risks and benefits of doing aircraft upgrades prior to closing.
For the past decade, the preowned aircraft market has been a buyer’s market. There has been an ample supply of inventory to choose from in all categories. After the first quarter of 2018, we are now seeing a more balanced market in most categories, and some categories are actually shifting further toward a seller’s market. In certain aircraft categories, it is difficult to find high-quality aircraft. The lack of high-quality aircraft has resulted in more buyers planning immediate and extensive upgrades to the aircraft they are purchasing.
If the aircraft being purchased is undergoing a major inspection as part of the pre-buy inspection, or if the discrepancies found during inspection will take a significant amount of time to repair, then there may be an opportunity for the buyer to perform some of the planned upgrades simultaneously, prior to closing. However, with this opportunity there are also risks.
The benefit to the buyer of doing the planned upgrades on the aircraft prior to closing is to decrease the down time of the aircraft so that the buyer can start flying on the aircraft sooner rather than later. The buyer will pay for the upgrades on an aircraft he does not own on the assumption that the closing of the aircraft will be finalized.
Prior to upgrading the aircraft in advance of ownership, the following items should be considered:
- What happens if the purchase does not close? If the seller defaults, does the seller get the benefit of the upgrades completed at buyer’s expense? If significant problems with the aircraft are discovered during the inspection process that make it impossible or impractical for the aircraft to ever meet the delivery conditions for the sale, does buyer still have to pay for the upgrades?
- If the aircraft is damaged in the course of performing the upgrades, who is responsible for the damage? Does buyer have insurance in place if buyer is assuming this responsibility?
- If additional discrepancies are discovered during the installation of the upgrades, who is responsible for paying to repair the discrepancies?
If, after considering the risks, the buyer still wants to proceed with the upgrades prior to closing, then the seller will need to consent to such work. If consent is given, completing the upgrades would require an amendment to the purchase agreement, unless the upgrades were previously addressed in the original purchase agreement. When possible, it is advantageous to consider the upgrades during the drafting of the purchase agreement in order to ensure there is a meeting of the minds on this issue prior to execution of the purchase agreement.
After reviewing the risks, if the buyer does not want to move forward or the seller will not agree to allow the upgrades prior to closing, an alternative approach might be to close before the completion of the inspection and/or the repair of all of the discrepancies. Under this scenario, the parties would need to estimate the outstanding costs for the inspection and discrepancy repairs and agree that seller will pay for such repair costs post-closing. For protection, the buyer could request a certain amount of money be left in escrow from the sale proceeds as a holdback until the inspection and discrepancy repairs are complete.
The Importance of Consent and Joinder Language in Aircraft Purchase Agreements see more
NAFA member, Debbie Mercer-Erwin of Wright Brothers Aircraft Title discusses the importance of consent and joinder language in aircraft purchase agreements.
In the 15+ years we’ve been in business, we have witnessed the good, the bad, and the ugly when it comes to private aircraft purchases and sales. Whenever possible, we like to share experiences with our customers and readers to prevent you from having an unpleasant transaction.
Prior to preparing a sales agreement, there will be an offer letter. While the terms of the offer letter are not binding, pay close attention as it does represent a commitment and is often used to draw up the sales agreement. The terms of a sales agreement are binding barring a legal reason for being enforceable. It’s important that you understand what is and what is not included. Most likely, buyers and sellers are having agreements drawn up by professionals, but it is still prudent to understand what you’re signing. Surely this sounds like common sense, but it’s worth pointing out.
Before you find yourself preparing for an aircraft closing – either as a buyer or seller – we’d like to help you understand the intricacies of aircraft purchase agreements; in particular, the importance of including Consent and Joinder language.
What is the purpose of a purchase agreement?
A purchase agreement outlines the terms and conditions of the sale. It lets the seller know that you are serious about purchasing the aircraft, and if it meets all the requirements of the agreement (it’s everything it’s represented to be), the aircraft should not be sold to someone else during this time. To protect you from the unforeseen, a buyer should be sure that the deposit given when the purchase agreement is signed is refundable or the trigger for nonrefundable treatment of the deposit.
Whichever party you are in the transaction, understand that the terms are negotiable. Do not agree to or sign anything that makes you uncomfortable. Even if a contract format has worked numerous times in the past, that doesn’t mean it contends with the specific terms and conditions of the current transaction in which you are involved. What has worked in the past could be a trap for the unwary in the present. Don’t sign a contract until it’s revised to meet your needs.
Sales and Purchase problems
Consider this possible scenario without clarity as to the deposit in a purchase agreement:
A buyer puts money in escrow as a deposit on an aircraft. At this point, there are no rules guiding what the escrow agent is supposed to do with the buyer’s funds, because the escrow agent has not been made a party to the agreement.
The buyer changes his mind and decides he doesn’t want to make the purchase. He asks for his money back. Because the escrow agent who is holding the funds is not a party to any of the agreements that exist, there is no clear obligation to anyone except for the depositor of the funds.
When there’s an aircraft purchase agreement, it is often a trigger that obligates the purchaser and makes the deposit nonrefundable. Otherwise there is no direction to an escrow company that says the funds are nonrefundable.
Consent and Joinder language in a sales agreement will help guide an escrow company. It would then be up to a court to determine who gets the deposit money through an interpleader action.
Avoid Problems with Consent and Joinder Language
When aircraft purchase agreements are written or put together by either the legal counsel or the sellers or the buyers, they should include what is known as Consent and Joinder by escrow agent so that they become a party to the agreement.
If you don’t take the time to include this information, you could find yourself in an unexpected situation.
- Under what circumstances does the deposit become nonrefundable?
- What is the seller responsible for with regard to the condition of the aircraft?
- What is each party responsible to do prior to closing?
At minimum, Consent and Joinder language included in your purchase agreement should include the following:
- The Escrow Agent accepts appointment by the Purchaser and Seller hereby as document holder and stakeholder for the sale and purchase of the Aircraft
- The Escrow Agent is acting as a document holder and stakeholder only
- They are not the agent or trustee for either of the parties
- They are not liable to either of the parties for any act or omission unless it involves willful misconduct or negligence on its part.
- The deposit is held exclusively for the sale of the aircraft based on the terms of the Agreement only
These observations are merely points to consider and should not be construed as legal advice or guidance to take or refrain from a particular position. As we discussed in our blog, Can’t I Handle my own Aircraft Closing, parties to an aircraft transaction should seek the advice of legal counsel.
This article was originally published in Wright Brothers Aircraft Title Blog on July 23, 2018.