Amanda Applegate

  • Tracey Cheek posted an article
    The Closing: The Final Step to Completing the Aircraft Acquisition! see more

    NAFA member, Amanda Applegate, Partner with Aerlex Law Group, shares what you need to know when it's time to close on your aircraft.

    At long last, you have found the aircraft that fits your needs, the pre-purchase inspection is complete and the discrepancies have been remedied. It is now time for the closing. What does this mean and what needs to be done? For many first-time aircraft buyers, they think the closing will be a long drawn out event. However, I tell all of my clients that the closing should be a non-event and if all of the work has been done in advance, the actual closing should take less than 10 minutes. Once the purchase agreement is executed, a closing checklist should be developed to track all of the deliverables needed through closing. Here is a list of the important items that need to be accomplished shortly before closing:

    1. Aircraft Positioning –
    The purchase agreement should identify the delivery location and who is required to pay the movement costs, if any. The closing cannot occur until the aircraft arrives at the delivery location and in the required delivery condition.

    2. Closing Documents –
    There is an actual filing window at the Federal Aviation Administration (“FAA”) registry in Oklahoma City, OK. All of the closing documents should be pre-positioned with the escrow agent in Oklahoma City, as the escrow agent will be responsible for filing the applicable documents with the FAA. As the buyer, the required FAA closing documents are a registration application FAA Form 8050-1, a statement in support of registration if the purchasing entity is a limited liability company, lender documents if applicable, and a declaration of international operations if there is an upcoming international trip. As the seller, the required FAA closing documents are a bill of sale FAA Form 8050-2, as well as any lien releases if necessary. Additionally, the buyer and seller will each need an active transacting user entity account with the international registry in order to register the contract of sale at closing. Further, the purchase agreement more than likely requires other non-FAA closing documents, such as a delivery receipt and warranty bill of sale.

    3. Insurance –
    During the purchase process an insurance carrier should have been selected and a determination on the amount of coverage required. Shortly before closing, insurance should be bound and the buyer should receive and review the certificate of insurance. If the aircraft is financed or managed by a third party, these parties will have specific insurance requirements which need to be evidenced on separate insurance certificates.

    4. Maintenance Programs and subscriptions – 
    If the aircraft is enrolled in any maintenance programs or subscription services, the third party providers must be contacted to confirm the account is in good standing, paid in full and transferrable upon closing.

    5. Closing Statement –
    The escrow agent will prepare a final accounting statement based on the terms of the purchase agreement and information provided by the parties. The statement will usually include the purchase price and any other fees due under the purchase agreement or to third parties, such as brokers. Any movement costs or similar expenses should be calculated a few days prior to closing and agreed upon by the parties prior to the day of closing.

    6. Inspection Facility Invoice –
    Oddly this is an item that can often cause a delay in closing. The aircraft cannot depart the inspection facility for the delivery location until all invoices are paid. However, invoices can’t be paid until they are final. The invoices from the inspection facility are very detailed and often take a long time to get into final form. Once received they must be reviewed in detail since certain costs are buyer costs and other costs are seller costs as dictated by the purchase agreement.

    7. Tax plan – 
    The tax planning at the federal and state level for the acquisition should have been completed while the pre-purchase inspection was occurring. At closing, the tax plan should be implemented. 

    All of the items above can be accomplished in the days leading up to closing. If done properly the actual closing is a series of emails or a conference call with all parties lasting less than 10 minutes!

    This article was originally published by on Nov. 19, 2019 in Articles, BusinessAir Magazine, The Latest.

  • Tracey Cheek posted an article
    Aircraft Insurance Considerations In A Tightening Insurance Market see more

    NAFA member Amanda Applegate, Partner with Aerlex Law Group, discusses what to consider when deciding on aviation insurance coverage.

    The recent uptick in insurance claims in the commercial airline world and in general aviation have caused a tightening of the aviation insurance market. As a result, many of my clients are seeing an increase in insurance premiums, limitations on conditions previously granted, and in some cases are unable to obtain the amount of liability coverage they would like to procure.

    As a result of the price increases, some of my clients have been seeking alternative insurance for their aircraft. However, as with all insurance, not all insurance providers and policies are the same. It is important for owners to identify an aviation insurance broker who can explain the different types of coverage available and the exclusions that may limit that coverage. Recently my client was comparing two policies and focusing on the annual premium instead of what amounts and types of coverage were provided for the annual premium. It turned out that certain amounts of coverage under the liability policies were very different, thus reinforcing the need to focus not just on the annual premium when comparing policies.

    It is important to find one qualified broker and allow that broker to canvass the market. It is bad practice to have multiple brokers shopping the market for coverage for the same aircraft. In fact, it may make it impossible for any broker to obtain quotations or binding coverage.

    There is a rating system for insurers and it is important for owners to know and understand that rating system. The A.M. Best rating reflects an insurance company’s financial strength and its ability to meet contractual obligations. The rating categories range from A++ to F (in liquidation). Providers with less than an “A-” Best rating generally should not be considered, and many established brokers will not offer insurance with a lower rating. Owners should also know and understand what exclusions apply to the insurance contract.

    As is the case with all insurance policies, it is important to have the coverage you need when you need it. Coverage in aviation policies may vary if the aircraft is modified, flight crew qualifications change, normal routes of travel are changed, or travel outside the United States takes place. Before changing flight crews, modifying training programs or traveling outside the country, be sure to check the policy and check with your broker. There have been too many cases where a policy was not in effect due to a change in business practices or travel areas.

    The basic types of aviation insurance coverage are physical damage to the aircraft (hull insurance) and aircraft liability insurance. Hull insurance provides for payment to the owner of the aircraft for physical loss of or damage to the aircraft, including engines, propellers, instruments and equipment usually and ordinarily attached to the aircraft. Liability insurance covers the liability to others for bodily injury and property damage resulting from the ownership or use of the aircraft. Most liability policies offer coverage for the defense of lawsuits brought against the insured resulting from a covered peril, even if the suit is groundless. The amount of liability coverage, including any deductible, will depend on the owner’s risk tolerance and factors such as the number of passenger seats in the aircraft, average passenger load, passenger profile, number of pilots, pilot qualifications and any umbrella policy.

    When owning or operating an aircraft, the aircraft owner/operator often enters into agreements related to the aircraft, including, but not limited to, lender documents, time share agreements, dry leases, pilot services agreements, management services agreements and hangar agreements. It is important to understand the insurance requirements under all of these agreements and prior to execution, the agreements should be reviewed and approved by the insurance provider to make sure that there will not be an issue with any claim as a result of the agreement executed for the ancillary services.

    In a tightening insurance market, it is understandable that an aircraft owner/operator would focus primarily on premium costs when selecting aviation insurance. However, in the long run, an aircraft owner/operator would be better served obtaining the best available policy with appropriate liability limits, and fully understanding the terms and exclusions of the policy, rather than waiting until after an occurrence to focus on such details- by then it may be too late.

    This article was originally published by Aerlex Law Group in BusinessAir Magazine, the Latest, on October 16, 2019.

  • Tracey Cheek posted an article
    2019 Aircraft Transactions - It Is Not Too Early To Plan For A Successful 2019 Closing see more

    NAFA member, Amanda Applegate, Partner with Aerlex Law Group, discusses how to plan for a successful aircraft closing in 2019.

    As we move into the last several months of 2019, whole aircraft transaction volume will increase, particularly in December. 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 2019 calendar year. Ten items to consider to help closing occur in 2019:

    1. If you are considering selling in 2019, 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 2019, 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 likekind exchanges are no longer available.

    5. If you are seeking depreciation in 2019 (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 to 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 2019 is on a Tuesday. In the past, the FAA registry has closed early on holidays and also for weather. It is recommended that 2019 closings be completed no later than December 27, 2019 in order to allow time for the aircraft to be placed into service before year end and avoid any unexpected closing 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 crossborder transaction, make sure all parties are realistic on the amount of time the import/export process will take and that there will not be any delays in getting the Aircraft on the new country registry.

    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 2020. Therefore, if a 2019 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.

    This article was originally published in BusinessAir Magazine, August 2019, Volume 29, No. 8 and on on September 12, 2019.

  • Tracey Cheek posted an article
    Ongoing Privacy Concerns with Implementation of ADS-B see more

    NAFA member, Amanda Applegate, Partner with Aerlex Law Group, discusses ADS-B and privacy concerns.

    ADS-B stands for Automatic Dependent Surveillance – Broadcast. By January 1, 2020, the majority of aircraft operating within the United States will be required to have ADS-B Out capabilities – and for aircraft registered internationally, some compliance deadlines are even sooner. Aircraft lacking ADS-B Out capabilities after that date will be effectively grounded or severely limited in where and how they can fly – perhaps for months! 

    The ADS-B Out requirements are just one element of the Federal Aviation Administration’s (FAA) Next Generation Air Transportation System (NextGen), which is being implemented in phases between 2012 and 2025. The purpose of NextGen is to transform America’s antiquated air traffic control (ATC) system from a radar-based system to a satellite based system. 

    What is ADS-B Out? ADS-B is technology that uses an airplane’s onboard global positioning system (GPS) to transmit the current position, speed, flight number and, most importantly, whether the airplane is climbing, descending or turning. The current radar-based system is not able to recognize and process information regarding climb, descent or turns. The transmitted information is sent to ATC and other aircraft. The current radar system sends updates once every two to twelve seconds. However, aircraft equipped with ADS-B Out capabilities transmit data every second. So, not only do the transmitted updates contain more information, including data on climb, descent and turns, but the updates also take place far more frequently. 

    Upgrading the system on an aircraft to incorporate ADS-B Out capabilities allows both ATC and pilots of other aircraft with ADS-B In to see the aircraft nearest to them with a graphical representation. While Traffic Alert and Collison Avoidance Systems (TCAS) currently provide some of this information, the additional data generated by ADS-B Out will make the information far more accurate. 

    With ADS-B Out equipped aircraft broadcasting not just their flight plans but their current position, speed, and flight number, aircraft can be tracked much easier. While there are many advantages to ADS-B Out, using this newly available information means it is easier for the world to know who is flying where. 

    There are two important steps that can be taken in order to minimize the public disclosure of aircraft locations:

    1. Ownership structure. Using options such as a finance lease, owner trust or sole purpose entity to hold title could help preserve anonymity if structured properly. 

    2. Registration Number Blocking. In 2013 the FAA issued a notice that allows owners and operators to limit the display of aircraft situation display to industry (ASDI) data. Owners and operators can request the blocking of the flight tracking information. While this does not include data now available because of ADS-B, it can help. The process for opting out of this flight data feed can be found here: 

    While many associations, including National Business Aviation Association (NBAA) and the Aircraft Owners and Pilots Association (AOPA) have been vocal about the privacy concerns linked to ADS-B data, a solution is not known or planned for the immediate future. As a result, planning and implementing a favorable ownership structure at the time an aircraft is purchased has become more important, as well as taking advantage of registration number blocking made available by the FAA.

    Please contact Amanda Applegate at 310-392-5200 or

    This article was originally published in BusinessAir Magazine, July 2019, Volume 29, No. 7., August 13, 2019. 

  • Tracey Cheek posted an article
    Closing Before the Aircraft is in the Delivery Condition - Exploring the Risks see more

    NAFA member Amanda Applegate, Partner with Aerlex Law Group, explores the risks associated with closing before the aircraft is ready. 

    More often than I would have thought possible, buyers and sellers are motivated by a variety of reasons to close on the purchase and sale of a pre-owned aircraft before the pre-purchase inspection is complete or before the inspection discrepancies are rectified. Sometimes it is because the buyer wants to close in order to start a major refurbishment to the aircraft and there is a long lead time on the correction of certain discrepancies and/or it would be more efficient to fix the discrepancies simultaneously with the refurbishment. Other times the seller wants the aircraft sold by a specific date for financial reasons, to make room for their newly acquired aircraft, or so the seller’s crew can leave for training on a replacement aircraft. Regardless of the reason, as a buyer there are certain risks that should be considered. 

    If the inspection isn’t complete at the time of closing, the risk to the buyer may be substantial because there could be unknown issues with the aircraft which haven’t yet been discovered. Additionally, if closing takes place while the discrepancies are in the process of being repaired then additional, significant discrepancies could be found, but the buyer no longer has the option to walk away from the purchase. 

    If the parties understand the risks and elect to move forward and close before the aircraft is in the contractually agreed-upon delivery condition, then there are two options. The parties can agree on a purchase price reduction based in part on the estimated cost to repair the discrepancies or the parties can agree on a holdback amount to be held by the escrow agent after closing, with those funds used to pay for the repair the outstanding discrepancies. 

    A reduction in purchase price allows the parties to complete the transaction and have no further dealings with one another. The price reduction should not only be for the amount of the outstanding discrepancies but should also include an amount that represents the risk that the buyer is assuming by accepting an aircraft which is not in the required delivery condition at closing. A short amendment should be drafted and signed by the parties which indicates the buyer is accepting the aircraft even though it does not meet the delivery conditions in exchange for the price reduction. The amount of risk being assumed under this option depends on the status of the inspection and/or the extent of the unrepaired discrepancies. One understated benefit of the price reduction over a holdback is that the transaction is completed, thus the seller has no further responsibilities and the buyer is free to do whatever they want with the aircraft going forward. 

    A holdback allows the seller to remain responsible after closing for paying the cost of the repairs necessary in order for the aircraft to meet the delivery conditions. If the holdback amendment is drafted properly, there is far less risk for the buyer under these circumstances. The buyer should make sure the seller remains responsible for not only the known discrepancies but any new discrepancies found during the completion of the repairs. Furthermore, the holdback amount should be enough so that collecting for the repairs from seller does not become an issue. I recommend the holdback amount be 150% of the estimated cost of the repairs. Additionally, the funds should be released automatically when the invoices are submitted to the escrow agent without further approval by the seller and if the holdback is not enough to cover the cost of the outstanding repairs, seller should remain liable. The escrow agent should be a party to the holdback amendment and they should confirm they understand the terms prior to execution. This will help avoid a dispute over when or how an invoice is paid. The parties will continue to work together until the repairs are complete and the remaining holdback amount, if any, is released to the seller. 

    There can be legitimate business reasons to close on a pre-owned aircraft prior to the aircraft meeting the delivery conditions as originally agreed upon between the parties. When the parties desire an early closing, it is important that the risk allocation is considered in the financial terms and that the agreement of the parties is clearly documented, including, if necessary, the post-closing obligations of the parties and the responsibilities of the escrow agent.

    Please contact Amanda Applegate at 310-392-5200 or

    This article was originally published by Aerlex Law Group in BusinessAir Magazine on July 15, 2019.

  • 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.

    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.


    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?


    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

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

  • Tracey Cheek posted an article
    Preparing Your Aircraft For Sale see more

    NAFA member Amanda Applegate, Partner with Aerlex Law Group, discusses the pre-emptive steps you should take for a smoother aircraft sales process.

    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.

    Please contact Amanda Applegate at 310-392-5200 or

    This article was originally published by Aerlex Law Group on May 8, 2019.

  • Tracey Cheek posted an article
    Purchasing an Aircraft with Maintenance Programs and Subscriptions: The Details Matter see more

    NAFA member, Amanda Applegate, Partner at Aerlex Law Group, discusses the details when it comes to purchasing an aircraft with maintenance programs and subscriptions.

    Aircraft that are enrolled in maintenance and subscription programs, such as those covering airframes, engines, and maintenance tracking, are often more marketable, and sometimes more valuable, than comparable aircraft that are not covered by such programs and subscriptions. There is real value to an aircraft buyer in having the programs and subscriptions on the aircraft when purchased. As a result, it is important that the programs and subscriptions are transferrable as part of the acquisition process. Each third-party provider is different in how they handle the transfer or assignment of programs and subscriptions. Some providers simply allow the seller to assign the current contract to the buyer but many require the buyer enter into a new agreement. It is important that the buyer understand the cost of the programs and subscriptions when putting together the budget for the ownership and operation of the aircraft. It is also important that all of the necessary paperwork be handled in a timely manner. Some providers will not send out the transfer paperwork until the purchase of the aircraft has been completed. When progressing through the aircraft purchase process, the buyer should consider the following:

    1. Purchase Agreement Requirements

    1. Prior to the execution of the purchase agreement, request copies of the current maintenance program agreements. Confirm that the advertised programs are in place at the rates previously provided.
    2. If the program provider(s) will not complete the transfers until after closing, make sure the purchase agreement requires the transfer obligations of Seller extend beyond the closing.
    3. For annual maintenance or subscription payments, make sure the contract is clear that the payment will be prorated based on the closing date or as otherwise agreed upon between the parties.
    4. If the buyer elects not to continue with a program or subscription, make sure the purchase agreement allows the buyer to terminate the program or subscription upon closing and stipulates which party must pay any fees associated with the termination.

    2. If the aircraft is being financed, make sure the lender documents allow sufficient time to get the transfers in place. Since the process is controlled by a third-party provider, it is difficult for the buyer to dictate to the provider a timeline put in place by the aircraft lender.

    3. If there is a minimum flight hour requirements under the program, make sure the minimums can be met by the buyer and if not, see if the program requirements can be revised.

    4. During the inspection process, contact each maintenance provider and subscription service and inform them of the pending purchase and request a balance on each of the accounts and what date they have been paid through. Often the maintenance provider or subscription service requires seller’s approval to disclose account information.

    5. Confirm with the maintenance or subscription service providers how the agreements will be transferred and when. Since each provider may have their own process, it is a good idea to create a document that tracks the process for each program and subscription.

    6. Closing should only take place after third party confirmation that all programs and subscriptions are paid through closing or otherwise in accordance with the purchase agreement.

    7. Once the closing has occurred, promptly send notification of the closing to the program and subscription service providers. Some providers will want a copy of the delivery receipt showing the number of hours on the aircraft/engine(s) at the time of closing. They may also want a copy of the bill of sale and perhaps additional documentation regarding the buying entity. Be sure to provide all required documents without delay.

    8. Continue to follow up with the providers until the transfer of all applicable programs and subscriptions are complete.

    Since there is real value to the aircraft programs and subscriptions associated with the aircraft, it is important that all of the paperwork is completed in a timely manner, so the aircraft remains enrolled on the programs and subscriptions bargained for as part of the aircraft purchase.

    The original article was published in Business Air Magazine.


  • Tracey Cheek posted an article
    How will the Tax Cuts & Jobs Act affect business aviation lending? see more

    NAFA member Amanda Applegate has written a great article for Business Aviation Advisor about how the Tax Cuts and Jobs Act of 2017 will affect business aviation lending.  Amanda is a Partner at Aerlex Law Group, a long-standing and well-respected member of NAFA. 

    How will the Tax Cuts and Jobs Act of 2017 (“TCJA”) affect business aviation lending? And what does this mean for you?

    • A surplus of capital/available funds will be created for many corporations by the decreased corporate tax rate. In 2017, C corporations were subject to graduated tax rates of 15% for taxable income up to $50,000, 25% (more than $50,000 to $75,000), 34% (more than $75,000 to $10,000,000), and 35% (more than $10,000,000). Beginning with the 2018 tax year, the corporate tax rate is a flat 21%, and the corporate alternative minimum tax is eliminated.
    • Bonus depreciation has increased from 50% to 100% on equipment, including aircraft. Depending on ownership structure, if you use your aircraft for business purposes, you may be able to immediately write off the entire cost of an aircraft acquired and placed into service (e.g., flying at least one qualifying business trip) after September 27, 2017, and before January 1, 2023. For tax years after 2022, there is a gradual phase out of bonus depreciation by 20% each year for five years. In addition, bonus depreciation under the TCJA applies to both new and pre-owned aircraft, as long as the aircraft is used for business purposes. Note that, for the next five years, aircraft used for business purposes qualify for 100% deductions in the cost of ownership for both new and pre-owned aircraft.
    • Under the TCJA, you will no longer be allowed to defer taxable gain on the sale of aircraft through the use of a like-kind exchange. Starting in 2018, the taxable gain on the sale will be subject to immediate recapture for tax purposes. However, if an aircraft, new or pre-owned, is purchased in the same year as the sale, and you are able to take advantage of bonus depreciation, then you may be able to reduce or eliminate the overall tax impact of the aircraft sale. The elimination of like-kind exchanges became effective on January 1, 2018 and is a permanent repeal.
      The National Aircraft Finance Association (NAFA) lender members are already noticing some definite trends after the passage of the TCJA.
    • Lenders offering tax leases expect their lease portfolio to grow. Although many clients will not be able to take advantage of the 100% depreciation under a tax lease, the lender can benefit in this circumstance. Lenders are investing more resources, including more robust modeling systems to predict aircraft depreciation, in order to develop better lease offerings. Furthermore, some lenders who had stopped doing leases altogether are now advertising a lease option for the first time in years.
    • A number of corporate clients have evaluated the impact of the TCJA on their individual situations and are now considering replacement aircraft, whereas such a consideration had been on hold in years past.
    • There is an increase in activity from current aircraft owners who own personally and are now seeking to upgrade to a newer aircraft – perhaps a result of both the strong economy and the decrease in taxes under the TCJA.

    If the TCJA does stimulate economic activity, rising interest rates may follow, a significant change for lenders and borrowers since we’ve had historically low rates for the last six years. Some NAFA lenders indicate that higher rates may lead to more aircraft financing opportunities. They reason that businesses and individuals who have used the liquidity on their balance sheets to self-finance investments may now look to leveraging an asset like an aircraft and deploying that liquidity into new investments.

    While it is too early to speak with any certainty, it appears that there is a strong likelihood of more aircraft financing in 2018, including tax leases, as a result of the TCJA. BAA

    This article has been publish as it appeared in the May/June issue of Business Aviation Advisor.