aircraft upgrades

  • Tracey Cheek posted an article
    Structuring an Aircraft Sale to a Flight School see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, answers your aviation finance questions.

    Q: Hi Adam, I’m the owner of a 77 B-55 Baron. My local flight school is interested in purchasing it but is unable to finance. Any ideas on how to structure a sale?

    A: If the flight school is unable to secure financing through an SBA loan or other means, seller financing might be an option. With AOPA’s Pilot Protection Services added to your membership you will have access to consultation with one of our panel attorneys. They would be able to help set up the appropriate contracts to facilitate the sale. 

    Q: I'm an AOPA member that recently purchased an airplane in Missouri and brought it back to North Carolina two days after purchase.  I intend to eventually incorporate business use into my flight time, but for now the use is personal.  I have two questions:  What sales tax can I expect to pay on this purchase, and from what state would I be taxed? I intend to upgrade avionics for ADS-B requirements.  If I incorporate business use into my flying before the avionics purchase, is any of this deductible or do I need to put it under an LLC before this happens?

    A: For tax-related questions your CPA would be able to provide the appropriate answers. Additionally, AOPA’s Pilot Protection Services has in house attorneys that specialize in aviation tax law. Adding PPS to your membership will give you access to these attorneys.  

    This article was originally published by AOPA Aviation Finance Company on October 23, 2019.

  • Tracey Cheek posted an article
    What You Need to Know Before Upgrading Your Aircraft see more

    NAFA member, Lee Rohde, Founder, President and CEO of Essex Aviation Group, Inc. gives his thoughts about refurbishing versus buying new and what you need to know.

    The private aircraft refurbishment market is booming. Many of the planes delivered within the past 15 years are still in excellent operating condition, which has led many private business aircraft owners to invest in upgrading their existing aircraft rather than replace them by acquiring younger or newly produced aircraft. All aircraft must undergo a designed inspection schedule to be operate legally. Current aircraft owners will often arrange for aircraft updates or refurbishments to coincide with scheduled inspections and maintenance because both types of work typically access the same areas.

    Refurbishing a Pre-Owned Aircraft vs. Buying New 

    Deciding whether to update the interior of your jet isn’t all that different from deciding whether to renovate your existing or recently purchased home or build a new one. From a financial perspective, it generally requires significantly less capital to simply make the renovations you want rather than build something entirely new. The same is true for private aircraft, in that upgrading existing aircraft typically requires less of a capital investment than a newly produced aircraft.

    How much you spend on your refurbishment and the scope of improvements you make are entirely up to you, but the investment can range from a few hundred thousand dollars to a few million depending on a number of factors, including the aircraft’s age and size.

    Updates and refurbishments to your existing aircraft interior or that of a newly purchased pre-owned aircraft can be completed in a shorter time period than the design and delivery of a new aircraft. The process for a new private jet acquisition can take upwards of 18 months depending upon the type of aircraft you purchase and the level of customisation you desire. By comparison, the process for a pre-owned aircraft acquisition and refurbishment can take a few months or more to complete depending upon the your desired upgrades and requirements.

    A Wide Variety of Design Options 

    Many aircraft owners choose refurbishment due to its wide variety of customization options. There’s an extensive list of modifications and upgrades you can make, from technological upgrades to soft goods in order to enhance or change the look and feel of the aircraft. Additionally, upgrading your existing or newly purchased pre-owned aircraft enables you to take advantage of new avionics and cabin technologies and features that likely weren't available when the aircraft was originally built. Refer to the list below to see examples of potential upgrades:

    Soft Goods

    1-Seat materials refurbished or replaced

    2-Re-carpeting

    3-Cabin/cockpit re-upholstery

    4-Veneer refurbished or replaced

    5-Surface plating

    6-Galley remodelling and upgrades

    Technological 

    1-Wi-Fi installation

    2-Cabin management system upgrade

    3-In-flight entertainment

    4-Touch screen controls

    5-Mobile device integration

    6-Avionics upgrades

    7-Weather system upgrades

    8-Navigation and Communication Systems upgrades

    Other

    1-Cabin reconfiguration

    2-LED lighting installation

    3-Soundproofing

    4-Mechanical upgrades or enhancements

    Soft goods and basic upgrades and enhancements generally require a lower investment than hard goods (cabin reconfiguration, veneer replacement or restoration, etc.) and technological upgrades. Ultimately, it’s up to you to decide which modifications and enhancements you’d like to make to your aircraft — and how much you’re willing to invest to make those modifications.

    How to Get Started 

    There are a few different ways to approach aircraft refurbishment. You could have your pilots or maintenance personnel act as your representatives, though you’ll want to make sure they have prior experience working on this type of project and look into which facilities they’ve worked with in the past. Also, keep in mind that your pilots or maintenance person won’t necessarily be available to be onsite at the refurbishment facility at critical times, such as when items need to be reviewed or approved, or be able to head there at a moment’s notice should any issues arise.

    Whether you’re looking to buy a pre-owned aircraft and refurbish it or update your existing aircraft, working with a private aviation consulting firm can provide many areas of benefit and value. Private aviation consultants typically have years of industry experience, as well as a vast network of industry relationships and contacts and a thorough understanding of an aircraft’s design possibilities, limitations and options that add value. They can also partner with your pilots and maintenance staff to support the on-going monitoring of the project and together accept and take delivery of the completed aircraft. Should you decide to retain the services of a private aviation consulting firm, your consultant should do the following:

    1. Walk you through acquisition and refurbishment options, break down capital expenditures and explain important design considerations.
    2. Recommend and negotiate with different facilities, as well as request proposals from each facility detailing the time, cost and in-house capabilities they have to complete the desired work.
    3. Make regular onsite visits to the facility of your choosing to monitor the ongoing work and ensure the project remains on schedule. If there are any issues or changes needed outside of the original scope of work, your consultant can work with you to review these items so you can make as informed a decsion as possible and work to keep the project on track.
    4. Work with your flight crew and maintenance staff to perform a final, detailed review and acceptance of the fit and finish of the completed projects. This review should include functional checks, a test flight and a review of the refurbishment technical records to confirm that they conform to the necessary regulations, all to ensure that the completed project meets the requirements of the contract terms and conditions.

    As you can see, private aviation consultants are uniquely qualified to handle every stage of the pre-owned aircraft acquisition and refurbishment processes. If an aircraft refurbishment is in your future, engaging the services of a consulting firm will ensure that the work on your newly upgraded aircraft will be completed and held to the highest standards every step of the way.

    Lee Rohde, Founder, President and CEO of Essex Aviation, a business and private aviation aircraft acquisition and consulting firm, has 30+ years of experience in financial and operational analysis, manufacturing, distribution and corporate business development.

    This article was originally published by Essex Aviation and Corporate Jet Investor on November 1, 2018.  

     

     

     

     

     

     

     

  • Tracey Cheek posted an article
    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:

    1. 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?
    2. 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?
    3. 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 original article was posted by Aerlex Law Group on April 25, 2018 and published in BusinessAir Magazine, April 2018, Volume 28, No. 4.