NAFA Administrator posted an articleAn 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 articleBest Time to Sell an Older Jet see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses the ideal time to sell an older aircraft.
Above and beyond the upfront cost savings, benefits to acquiring a used jet in great condition include avoiding much of the increased depreciation that besets aircraft in those early years. Of note to sellers, the inventory for well-maintained, 15-year old or younger turbine aircraft is severely limited. That translates into high demand and a market that's in your favor.
As with many things, putting an older, well-maintained jet on the market involves the right timing. It may sound counterintuitive, but the best time to sell an older jet is right after you’ve done the scheduled, heavy maintenance on it, after you've brought your jet up to date on all of its maintenance events.
A jet's optimum selling price point occurs when the aircraft has its lowest maintenance exposure to asking price ratio (ETP). That ratio is expressed as the value of an aircraft as a percentage of unaddressed maintenance due on an aircraft versus the overall market value of the aircraft. When the ETP is at its lowest is also when the aircraft is most desirable. That's why historically, planes that have the lowest ETP tend to sell the quickest.
To be clear, this does not include avionics upgrades, only scheduled maintenance. Retrofitting avionics on older jets is not just an expensive proposition, it's also a subjective one. The vast range of options available make it virtually impossible to please everybody. Plus, the money a seller sinks into new avionics probably will not be recouped in the sale. It's better therefore to let the new buyer install the avionics suite of their dreams post-acquisition.
If it's possible, coordinating the completion of heavy maintenance items with the start of the last quarter of the calendar allows the owner of an older, well-maintained jet to take advantage of the best calendar time of the year to sell it--September through December. That's because many businesses have a fiscal year and a calendar year that parallel each other. Those that do tend to more closely assess ways to manage their bottom line as they approach Q4. That heightened focus on the year-end clarifies whether selling the jet or acquiring one is an appropriate income offset option. For many, it's the perfect time.
And then there's the tax incentive. When the dollar amounts are more significant and an aircraft is used in business—the possibility of a tax deduction of 100% of the cost of the aircraft does exist, based on the current tax law in place.
To be fair, getting to 100% is really difficult and the inherent landmines are many. At AOPA Aviation Finance, we strongly advise anybody pursuing that goal to talk to their tax experts before attempting such a course of action. I should also point out that the latest regulations that came through in 2017 closed some significant aviation-related loopholes. For instance, capital gains deferment into another aircraft purchase is no longer a legal option. A discussion with your accountant on how you’re going to manage your tax liability is a must. When you do go to sell, there will be capital gains tax implications.
Bottom line: If you own a well-maintained, older jet and it's fresh out of maintenance, now's the best time to consider selling it. ETP is low and demand is high.
This article was originally published by AOPA Aviation Finance Company on November 18, 2019.
Tracey Cheek posted an articlePreparing Your Aircraft for Sale see more
NAFA member, Amanda Applegate, Parter with Aerlex Law Group, shares what you need to know to prepare your aircraft for sale.
Once a decision has been made to sell an aircraft, there are certain steps that should be taken in order to make sure the aircraft is ready to be sold. By taking these steps in advance, you will make the sales process easier and will avoid losing a potential sale.
1. Company Status. A business search should be done on the secretary of state website where the selling entity is registered. The selling entity needs to be active and in good standing. If it is not, the selling entity will need to take steps to bring the entity back to an active and good standing status with the state of registration. A sale agreement should not be signed unless the entity is in good standing, since most sales agreements contain a representation that the selling entity is in good standing.
2. Title Searches. For a few hundred dollars, a title search (for both the Federal Aviation Administration (“FAA”) and International Registry (“IR”)) can be prepared by any of the law firms or aircraft title companies in Oklahoma City, where the FAA registry is located. More often than you might expect, there are liens on an aircraft that the seller did not know about. Clearing an aircraft title of old liens can be time consuming, especially when the lienholder no longer exists, has changed names, or has been acquired by another company.
3. Aircraft Records Organization (paper and electronic). The keeper of the aircraft records should be tasked with making sure all entries in the log books and computerized maintenance tracking system are complete and up to date. The paper aircraft records should be organized and reviewed to make sure there are no missing entries. All aircraft records should be gathered and centralized so that when it is time to ship the aircraft records for the pre-purchase inspection, there won’t be a delay.
4. Specifications Sheet. When the aircraft is listed for sale a specification sheet which describes the aircraft will be developed for marketing purposes. It is imperative that this specification sheet is reviewed by technical experts to make sure the aircraft is being advertised correctly. In some instances, the specification sheet is added to the sale agreement as an exhibit and the seller agrees that the aircraft will be in the condition detailed in the specification sheet at the time of closing. If the specification sheet is not accurate, it could cause the buyer to negotiate a lower purchase price, demand the aircraft be as advertised, or terminate the sale.
5. Loose Equipment. A list should be prepared showing all of the loose equipment being sold with the aircraft. This way there is no debate as to which loose equipment is being sold with the aircraft and which items the seller is allowed to keep.
6. Inspections. All upcoming inspections should be performed and if there is any deferred maintenance it should be brought current. During the sale process, the buyer may request that seller handle all inspections through a certain future date. Therefore it is a good idea to understand what inspections are coming due in order to understand the economic impact of the item being requested.
7. Registration Number. It is important to decide if the registration number currently on the aircraft is going to be retained for future use by the seller. If so, I recommend starting the process to change the registration number and retain the old number even before listing the aircraft for sale, or as you are listing the aircraft for sale. It can take 6-8 weeks for the FAA registry to process the change request and issue the 8050-64 form which allows the registration number to be changed. Therefore the change request should be made early in the process in order to complete the process prior to sale.
8. Loaner Equipment. If there is any loaner equipment on the aircraft it should be disclosed as part of the sale process. For example, if an engine overhaul is taking place and a loaner engine is currently on the aircraft, arrangements need to be made with the service provider to transfer all agreements to the new owner as part of the sale process.
9. Maintenance Programs. If the aircraft is on any parts programs, APU, engine programs, or the like, the program provider should be contacted to confirm that the programs are paid current and there are no deferments or deficits on any programs. Any deferments or deficiencies will need to be resolved by the seller.
10. Building the Sales Team. When you are ready to list the aircraft for sale, you should hire an aircraft broker/consultant to handle the listing for you who has a good understanding of the market for your particular aircraft. This aircraft broker/consultant will be able to help you set a realistic sale price, market the aircraft and handle the logistics of the sale for you. Additionally, you should also have an aviation attorney on retainer who is ready to immediately review a letter of intent or draft a sale agreement when an offer arrives.
By taking the steps above, including building the right sales team, buyers will find less fault with the aircraft and be more willing to buy your aircraft. A properly pre-planned and organized aircraft sale can help make the sales process straightforward and more efficient.
This article was originally published in BusinessAir Magaziine, December 2019, Volume 29, No. 12 on January 6, 2020.