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  • Tracey Cheek posted an article
    Nardone and Company, Inc. Joins National Aircraft Finance Association see more

    EDGEWATER, Md. – Dec. 4, 2018 – National Aircraft Finance Association (NAFA) is pleased to announce that Nardone and Company, Inc. has recently joined its professional network of aviation lenders. “NAFA members proudly finance - support or enable the financing of - general and business aviation aircraft throughout the world, and we’re happy to add Nardone to our association,” said Ford von Weise, President of NAFA.

    Nardone & Company, Inc., is a Veteran owned corporation in their 25th year of business. Experience within Nardone & Company exceeds 40 years in the salvage industry and since their establishment on July 8, 1993, they have been dedicated business partners, producing the highest salvage return on the sale of damaged goods - quickly and cost effectively. The company’s Aviation Technical Services focuses solely on aircraft-related salvage, sales/recovery, current market values, inventory loss, and damage evaluations.

    The company’s President, George Nardone, Jr. is a member of the National Aircraft Appraisers Association (NAAA).  Mr. Nardone has Airline Transport Pilot Ratings and over 40 years of aviation experience. Their staff of highly experienced and dedicated professionals, with senior certified aircraft and USPAP compliant appraisers, pride themselves on immediate response and rapid reporting with complete documentation on all assignments. 

    Aircraft appraisals by Nardone and Company’s professionals provide the buyer or seller with onsite inspections, valuation utilizing current market conditions and their sophisticated NAAA appraisal that measures every aspect of the aircraft's value at a reasonable cost. They can also manage pre-purchase inspection and provide consulting services to help match clients with the appropriate aircraft to meet their specific requirements. 

    Much like NAFA, Nardone and Companyupholds the highest standards in aircraft appraisal throughout the aviation industry as dedicated partners with their clients. “We provide credibility and trust every time,” said George Nardone, President and CEO. Nardone and NAFA are committed to fostering the education and experience necessary to develop the aviation industry as a whole.

    For more information about Nardone and Company, Inc., visit www.nardoneandcompany.com

    About NAFA:  

    The National Aircraft Finance Association (NAFA) is a non-profit corporation dedicated to promoting the general welfare of individuals and organizations providing aircraft financing and loans secured by aircraft; to improving the industry's service to the public; and to providing our members with a forum for education and the sharing of information and knowledge to encourage the financing, leasing and insuring of general aviation aircraft. For more information about NAFA, visit www.NAFA.aero.

  • Tracey Cheek posted an article
    How to Simplify Aircraft Lease Return see more

    NAFA member, Essex Aviation Group, discusses how to simplify aircraft lease return.

    As the global finance industry evolves, more and more banks are turning to corporate aircraft leasing to create new financial opportunities and expand profit margins.

    The concept is simple enough: Similar to a leasing a car, a bank owns the aircraft and leases it for a predetermined period of time (typically anywhere from 5 to 15 years). During lease agreement negotiations, the parties define the various lease terms — specifically, the length of the lease and terms regarding the intended use and operation of the aircraft.  One of the most important matters that the lease should cover is within the return conditions expected of the aircraft and the definition of any maintenance activities or inspections that the lessee needs to complete prior to returning the aircraft. The lease should also define the aircraft specifications, loose equipment and any additional items that were with the aircraft at the time the lease began and must be returned to the lessor.

    Overseeing a Lease Return

    If you are a lender or the asset manager of an organization that is in the business of leasing aircraft, consider working with a qualified aviation advisor to manage the asset’s return requirements and ensure that the aircraft meets the terms and conditions as defined in the lease agreement.

    In doing so, your advisor will carefully review the lease agreement and evaluate the asset against the terms of the agreement. Evaluation is typically a four-part process, during which the advisor should do the following:

    • Re-review the aircraft records for continuity and completeness (gaps or missing records will affect the value of the asset).
    • Ensure that the aircraft conforms to how it was originally certified or has subsequently been modified.
    • Review any damage history, out of sequence maintenance activities or major repairs.
    • Assist the lessor in the lease return inspection discussions with the lessee.

    Even a minor issue with the asset — say, for example, a malfunctioning galley appliance — being necessary to function and as part of the aircraft’s certification can cost your organization thousands of dollars to repair or replace if this item is not identified during the lease return inspection. It is your advisor’s job to flag any of these types of items or other potential issues and work with the lessee concerning the necessary maintenance work and or repairs that need to be completed to meet the return requirements.

    An aviation advisor can be particularly helpful to small banks that do not have in-house staff with the available time and (potentially) expertise to conduct a thorough review.  Lessors that have older lease agreements will likely need additional guidance prior to the aircraft return to address potential issues that may not be covered. The language used in older lease agreements often tends to be vague compared to newer agreements, which leaves room for interpretation. Often, the two parties will need to negotiate the lease return requirements well in advance of the start of the lease return inspection process. Fortunately, an aviation advisor can work with your asset management team to identify and clarify these terms with the lessee and ensure that your organization maximizes the value of the aircraft upon its return.

    The Importance of Continued Support

    For some aviation advisors, their work ends once the inspection and lease return process are complete. Other aviation advisors, however, will continue to provide quality support and service well after the asset is returned.

    Once the aircraft has been returned, banks and lenders will either re-lease the aircraft or choose to sell that aircraft out of their portfolio. If your organization intends to re-lease or sell an asset, consider working with an aviation advisor who can work with you and other industry service providers to re-market the aircraft. Certain aviation advisors go the extra mile and provide continued on-site support, such as securing a location to safely store the aircraft and manage the necessary maintenance support to keep the aircraft in flight ready condition.

    The key to finding the right aviation advisor is to look for one backed by a team with years of industry experience and proven dedication to its clients. If you would like to speak to an experienced aviation advisor who can provide unbiased advice and assist your organization with lease return management, contact the experts at Essex Aviation today.

    Essex Aviation Group, Inc. was founded in 2013 with the primary goal of providing clients with the most current industry knowledge and experience, a vital component in evaluating business and private aviation transportation needs.

    Representing clients in a wide range of services, Essex builds client relationships through dedication to trust, integrity and a level of responsiveness not found anywhere else. Services include new or pre-owned aircraft acquisitions, new aircraft completion management, pre-owned aircraft refurbishment and upgrade management, block and ad hoc charter service and much more.

    This article was originally posted on the Essex Aviation Group blog.

  • NAFA Administrator posted an article
    Avoiding Pitfalls When Exporting Aircraft from the United States see more

    NAFA members, Jonathan M. Epstein and Libby Bloxom, with Holland & Knight, discuss what you need to know regarding exporting aircraft from the United States. 

     

    Highlights


    • Recent aircraft seizures by U.S. Customs and Border Protection (CBP) and the U.S. Department of Commerce Bureau of Industry and Security (BIS) have highlighted the need to ensure compliance with U.S. export laws.
    • Sellers, buyers, brokers and others involved in the sale or lease of aircraft for operations by foreign parties need to cooperate with each other to ensure exports are done properly and in compliance with U.S. export laws, including making an Electronic Export Information (EEI) filing and complying with any licensing requirements or restricted end-user/end-use limitations under the Export Administration Regulations (EAR).

    There are two common types of aircraft exports: 1) permanent exports – where the aircraft is physically exported (i.e., flown) from the U.S. as part of a sale, lease or transfer of possession and control to a foreign person, or is otherwise intended to be based out of the U.S. for one year or more; and 2) temporary exports – where the aircraft will fly under its own power on a temporary sojourn, such as carrying passengers or cargo from the U.S. to Mexico, where it is intended that the aircraft will return to the U.S. within one year and there is no transfer of control. This Holland & Knight alert focuses on permanent export requirements.1

    There is considerable confusion as to the requirements under customs and export laws for aircraft being sold or leased to a foreign person and exported from the United States (i.e., being permanently exported from the U.S.). Unlike most goods that move in commerce, when an aircraft is sold or leased to a foreign party, it departs the U.S. as its own conveyance. However, many of the same basic export requirements apply, as if the aircraft had been boxed up and sent as freight to the foreign country. This process is confusing for a number of reasons:

    • Parties may confuse requirements such as deregistration with the Federal Aviation Administration (FAA) and issuance of an export certificate of airworthiness with requirements under U.S. customs and export laws, in particular the need to make an Electronic Export Information (EEI) filing.
    • Even aircraft that remain on the FAA registry may be permanently exported for customs and export control purposes. For example, aircraft owned by U.S. lessors (or a U.S. trustee), where the operator intends to base the aircraft outside the U.S., would still be considered a permanent export under U.S. customs and export laws.
    • U.S. export regulations, dictating the responsibility to determine export requirements and make EEI filings, can be confusing and difficult to apply to certain aircraft export transactions.

     

    What Is an EEI Filing and When Is It Required?

    The EEI is an electronic submission of export data filed through the Automated Export System (AES), administered by U.S. Customs and Border Protection (CBP), although the Foreign Trade Regulations (FTR) governing EEI filings are administered by the U.S. Census Bureau.2 The EEI contains details, such as the parties to a transaction and ultimate consignee, the export classification of the item, value and other data that is both for statistical and law enforcement purposes. The EEI is generally filed prior to the permanent physical export of the aircraft from the United States. For example, an EEI would be required where:

    • the aircraft is sold to a foreign buyer and permanently exported from the U.S.
    • an aircraft departs the country with the intent to base it out of the country for one year or more, such as, for example, a lease of an aircraft by a U.S. lessor to a foreign operator

    Conversely, an EEI would not be required where the aircraft is temporarily exported and intended to be based out of the U.S. for less than one year or where there is no physical export from the U.S. (for example, if an aircraft is sold domestically to a foreign entity in the U.S. that intends to base the aircraft in the U.S.).

     

    Who Is Responsible for Making the EEI Filing?

    Generally, the U.S. Principal Party in Interest (USPPI) is responsible for making the EEI filing, but will often appoint a customs broker as the "authorized agent" to make the filing on its behalf (except where the transaction is a routed export transaction as described below).

    The USPPI is the "person or legal entity in the United States that receives the primary benefit, monetary or otherwise, from the export transaction. Generally, that person or entity is the U.S. seller, manufacturer, or order party, or the foreign entity while in the United States when purchasing or obtaining the goods for export."3

    • In an aircraft transaction, the USPPI would typically be the actual seller (the entity that receives the financial benefit from the sale). For example, if a U.S. manufacturer sells an aircraft to a U.S. foreign party, the U.S. manufacturer would be the USPPI.
    • The foreign buyer is typically not the USPPI in aircraft transactions, as the foreign buyer is rarely "physically in the U.S." Even if the foreign buyer's pilots take delivery in the U.S., it is insufficient to make the foreign buyer the USPPI, as the pilots are performing only the ministerial task of ferrying the aircraft out of the U.S. Rather, this would be considered a "routed export transaction."

     

    A "routed export transaction" is an export transaction where the Foreign Principal Party in Interest (FPPI) authorizes a U.S. agent to facilitate the export of an aircraft from the U.S. and make the EEI filing on the FPPI's behalf.

    For example, if a foreign buyer accepts delivery of the aircraft in the U.S. and arranges for contract pilots to fly the aircraft from the U.S. to Mexico, the foreign buyer would be the FPPI and would appoint an authorized agent in the U.S. (e.g., a customs broker) to make the EEI filing on its behalf. In this scenario, the seller would be the USPPI and would be responsible for providing information to the FPPI's authorized agent in order to complete the filing. The USPPI would not itself be responsible for filing the EEI, unless it obtained authorization from the FPPI to make the EEI filing. However, many U.S. manufacturers include the latter authorization in their contracts, as it is prudent for them to oversee such EEI filings, rather than rely on the foreign buyer who may be unfamiliar with U.S. export clearance requirements.

    Applying these rules to some aircraft export transactions is difficult, and even experienced customs brokers/government officials can reach different conclusions as to which party should be the USPPI or FPPI and whether a transaction is a routed export transaction or not. However, the aircraft broker receiving a commission only, an owner trustee or a management company providing ferry services generally would not be considered the USPPI or FPPI, as they are not a principal party receiving the primary benefit of the transaction.

     

    Who Is the "Exporter" and What Are the Restrictions on Exporting?

    The term "exporter," under the Export Administration Regulations (EAR), is defined as "[t]he person in the United States who has the authority of a principal party in interest to determine and control the sending of items out of the United States."4 The exporter is generally the USPPI and is the party generally responsible for determining licensing authority (i.e., determining whether the aircraft export requires a license, falls under a license exception or qualifies for no license required). The principal exception to the USPPI being the exporter is, in a routed export transaction, if the USPPI obtains written confirmation from the FPPI that the FPPI will be responsible for determining licensing authority. In such case, the authorized agent of the FPPI is the exporter under the EAR.5

    The EAR applies to the physical export of civil aircraft from the United States to a foreign country, regardless of whether the aircraft is flying on a temporary basis or for permanent export. However, most civil aircraft do not need a license to export to most countries under the EAR or U.S. economic sanctions. However, exports are generally prohibited to sanctioned countries, such as Cuba, Iran, Syria, Sudan, North Korea and the Crimea region; certain persons on barred entity lists, including the Entity List, Denied Persons List and Specially Designated Nationals (SDN) List; or certain barred end-users/end-uses (such as military end-users/end-uses in Venezuela, Russia and China).

    U.S. parties should properly vet the foreign counterparties (including the beneficial owner of the purchaser as well as the end-user) before transferring title to ensure that the aircraft will not be diverted to an unlawful end-user, end-use or destination in violation of the EAR or U.S. economic sanctions. Even if the buyer is not designated on one of the above lists, U.S. parties should be alert for and cautious of any "red flags" of possible illegal activity, such as funds from various sources not associated with the buyer, a buyer who is evasive about disclosing the end-user or a buyer who refuses to provide information about its beneficial ownership.

     

    What Are Some Tips to Ensure Compliance with Export Requirements?

    The export clearance process is an inexpensive ministerial process, but failure to follow the procedures can result in fines or even aircraft seizures by the U.S. government. Regardless of your role as seller, buyer, broker, trustee or outside counsel, it is important to collaborate with other parties in the transaction on export clearance in the same way parties work to ensure that deregistration and export certificate of airworthiness issues are properly handled. While not comprehensive, below are some tips for complying with the export clearance process when exporting from the U.S.

    • Confirm that the party responsible for the EEI filing is using a customs broker or other professional experienced in aircraft exports (particularly in routed export transactions). The customs broker or counsel can assist in determining whether a transaction is a routed export transaction and who the USPPI should be (in some cases, in consultation with the Census Bureau).
    • Note that the first page of the airway bill, export shipping instructions or other commercial loading documents (e.g., export manifest) must be annotated with an Internal Transaction Number (ITN), which is the EEI filing identification number automatically generated when the EEI is filed.6
    • The purchase agreement should clearly delineate which party is responsible for arranging and paying for export licensing and clearance, consistent with the restrictions in the regulations (i.e., certain responsibilities may not be contractually disclaimed). In addition, it is recommended that the purchase agreement contain export control language, and a "destination control statement" should be included on the commercial invoice prepared for export purposes.7
    • Be cognizant that an aircraft departing the U.S. (whether for permanent or temporary export) must comply with certain filing requirements, such as pre-filing an electronic manifest. For example, private aircraft must not depart the U.S. to travel to a foreign location until CBP confirms receipt of the appropriate manifest and departure information, and grants electronic clearance via electronic mail or telephone.8 In addition, some foreign countries require filing of advance notice of arrival.
    • In some cases, an aircraft will be loaded with spares or other items that may be considered cargo. If this is the case, check with the customs broker, as such items may need to be separately declared and identified in the EEI for export purposes (and for import into the destination country).
    • Parties should retain records of proper export. Note that the EEI is confidential, and the USPPI and authorized agent generally cannot share the EEI with anyone, including the FPPI.

     

    Notes

    1 This Holland & Knight alert provides an overview of customs and export control clearance issues when exporting aircraft from the United States. It should not be construed as legal advice with respect to any particular transaction or export. In particular, the specific facts and circumstances of each transaction/export will dictate the responsibility of each party under U.S. law.

    2 15 C.F.R. Part 30.

    3 15 C.F.R. § 30.1 (defining "U.S. principal party in interest").

    4 15 C.F.R. Part 772 (defining "exporter" and also defining a "principal party" as "those persons in a transaction that receive the primary benefit, monetary or otherwise, of the transaction. Generally the principals in a transaction are the seller and the buyer. In most cases the forwarding or other agent is not a principal party in interest."). The term "exporter" or "exporter of record" is not a term used in the FTR governing EEI filings.

    5 See 15 C.F.R. § 758.3 (Responsibilities of Parties to the Transaction).

    6 See 15 C.F.R. § 30.7.

    7 See 15 C.F.R. § 758.6.

    8 See 19 C.F.R. § 122.22(c).

     

    This article was originally published by Holland & Knight on February 23, 2021.

  • NAFA Administrator posted an article
    How Creative Thinking Closes Deals see more

    NAFA member, Jetcraft's Pascal Bachmann, discusses closing deals in the business aviation industry during COVID-19.

    If you want to survive and thrive in turbulent times, you need to be flexible, inventive and tenacious. The business aviation industry is no exception. It requires clever thinking to close major deals during Covid-19.

    Bringing buyers and aircraft together safely for viewings during lockdown has been a challenge, but it’s hard for clients to place a deposit on a multi-million-dollar private jet they haven’t seen in person. In some cases, we’ve used high-resolution photos and video to bring the viewing experience to the customer. In others, we’ve flown the aircraft directly to the buyer’s hometown for a viewing.

    I’m proud to say that Jetcraft recently facilitated the closing of a US-based Embraer Legacy 450 aircraft in a record-breaking seven days.  This is not typical, though.  Every deal is different, and whatever logistical challenges we face, they can be overcome with a little imagination. A complex European sale of a Dassault Falcon 7X, which closed on April 1, is one such example.

     

    NAVIGATING A COMPLEX CLOSING DURING COVID-19

    Firstly, we needed to find crew who could drive to Geneva, where the 7X was located, and make the arrangements to ensure those pilots could enter Switzerland. The buyer also wanted to paint the aircraft after closing, so we had to find an FBO open and able to carry out the work.

    Our initial plan to close the deal in Guernsey became impractical when coronavirus struck and a 14-day quarantine was imposed on anyone landing there. I’m not saying it’s not nice to spend two weeks on that beautiful island, but understandably the buyer didn’t want their new jet to be stuck there after closing.

    We found a second possible location, which might have worked with clever manoeuvring of crew across international borders, but we needed a confirmed tax ruling from the authorities, who were shut down and wouldn’t respond.

    By now, we were considering a bit of everything, including closing in international airspace, which would have been possible but not ideal from a tax perspective. Clients might want to use this option in future, though, especially if Covid-19 border restrictions remain in place

    We finally found a closed airport in the buyer’s home country, so we had to arrange for the facility to open, and firefighters to be present, to be able to land the jet and complete the deal there.

    We still faced the challenge of retrieving aircraft documents from an OEM service center in another country. With minimal staff working at the facility, even finding keys to the archive doors took longer than usual. I was so frustrated, I nearly jumped in my car and drove there to get the paperwork myself!

    We were determined never to be beaten. At every stage of the transaction, our team persevered, and had the vision to find a creative solution.

    NAVIGATING A SEVEN-DAY CLOSING DURING COVID-19 

    Considering the complexity of the Falcon 7X closing, how did our sales team move so quickly to close the Embraer Legacy 450 aircraft in seven days?

    The aircraft (part of our owned inventory) was new, so no further inspections were needed ahead of the sale. We took the lead in flying the jet to the buyer in the US for initial viewing.

    It always takes two parties to close a deal. Both our team and the cash buyer did everything promised to secure the sale quickly. This kind of mutual commitment is priceless.

    Throughout the Covid-19 lockdown, demand to buy or upgrade private jets has remained. There are definitely challenges in meeting those requests – if we’re bringing a European aircraft to the US, for example, we need European pilots for the test flight after going through the ‘C’ check. But it’s easier to move aircraft around the US than Europe because there aren’t border closings between states, so we’re repositioning some of our jets there for viewings.

    With an experienced and creative sales team in place, aircraft trading can continue wherever you are, even in a lockdown, while keeping all parties healthy and safe and following the guidance of authorities. Miracles take time, but we can usually manage the impossible within 24 hours.

    This article was originally published by Jetcraft on June 29, 2020.

  • 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
    Best 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 article
    Preparing 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.

     

  • Tracey Cheek posted an article
    Application of the UN Convention on Contracts for the International Sale of Goods to Business Aircra see more

    NAFA member, Greg Reigel, Partner with Shackelford, Bowen, McKinley & Norton, LLP., discusses the United Nations Convention on Contracts for the International Sale of Goods ("CISG"). 

    In the current business aircraft sales market it is not uncommon for a transaction involving a business aircraft to have either a buyer or a seller from another country. In those situations, when the parties are drafting their aircraft purchase agreement, they should be aware that the United Nations Convention on Contracts for the International Sale of Goods(“CISG”) could apply to their transaction.

    What Is The CISG?

    The CISG is an international treaty that was ratified by the United States Senate in 1986. It was intended to be a uniform and fair set of rules for contracts for the international sale of goods to prevent parties to an international transaction from having to analyze the various national or international laws to determine the law applicable to the contract. One of the primary goals of the CISG is to facilitate certainty and predictability of international sales contracts. which, in theory, then decreases transaction costs.

    By signing on to the CISG, a country adopts the terms of the CISG as its national law. In the case of the United States, the CISG is now part of U.S. federal law. When it applies to a transaction, the CISG generally replaces the uniform commercial code, adopted by most states within the U.S., with its own provisions regarding contract formation, obligations of the parties, breach, remedies, damages, etc.

    When Does the CISG Apply?

    The CISG applies to contracts for the sale of goods, including aircraft, between parties whose places of business are in different countries where both countries are contracting states under the CISG (e.g. have agreed to be bound by the CISG). (Note: the CISG only applies to transactions between businesses, not consumer transactions or sales of services). Although the CISG does not apply to the sale of an aircraft, it may apply to parts, components or other goods that are not installed on an aircraft but are otherwise being sold with the aircraft. When a dispute arises out of a contract for sale of goods between parties from contracting states the CISG will apply to the dispute unless the parties elected to exclude its application to their transaction.

    Thus, the American business owner of an aircraft will be bound by the terms of the CISG if it contracts with a party whose “place of business” is in a country that is a signatory to the CISG at the time the aircraft purchase agreement was signed, unless the agreement specifically excluded application of the CISG. Since the United States is a signatory, in order to determine if the CISG applies to a business aircraft transaction an American owner must determine whether the other party’s “place of business” with the closest relationship to the aircraft purchase agreement is also within a contracting state.

    Article 10 of the CISG provides, “[I]f a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time or at the conclusion of the contract.” The “place of business” determination requires analysis of where the communications about the contract or representations about the product originated, as well as when those communications occurred. This means the communications relating to the entire transaction, including the offer and acceptance as well as performance of the contract. And for those who may be thinking along the lines of where the business is incorporated or where its home office is located (the analysis required for exercise of jurisdiction over a business), that isn’t the case under the CISG. Rather, a location is only relevant if it has the closest relationship to the contract and its performance.

    Why Does It Matter?

    If application of the CISG applies and has not been specifically excluded in the purchase agreement, then the parties to a business aircraft transaction may be stuck with CISG provisions that may or may not be consistent with the state law otherwise selected or preferred. For example, in the event of a dispute the applicable CISG remedies or damages provisions may be more limited than what would otherwise be provided under state law. Or the CISG’s incorporation of INCOTERMS may be beyond applicable state law. And this is especially true where U.S. courts have either failed to recognize the CISG’s existence in applicable cases or misapplied the body of law to the transaction.

    What Can You Do?

    If the CISG would otherwise apply to a business aircraft transaction but you do not want it to apply, you must affirmatively opt-out of its application. To do that, you can specifically disclaim or exclude application of the CISG by including language in your aircraft purchase agreement. Merely including choice of law language in an agreement is not considered clear intent of opting-out. Rather, opt-out language should be similar to the following:

    “The parties agree that the 1980 United Nations Convention on Contracts for the International Sale of Goods shall not apply to this Agreement.”

    Conclusion

    So, if you are more comfortable with state law, or you are unfamiliar with the provisions of the CISG and don’t want to take the chance on whether the CISG will beneficial or unfavorable, you will want to include disclaimer language in your aircraft purchase agreement. Inclusion of disclaimer language relieves the parties of having to determine exactly what Article 2 does or does not cover, especially since the CISG’s exclusions must be interpreted narrowly. Otherwise, if you enter into an aircraft transaction to which the CISG applies and do not include disclaimer language, you may be in for a surprise if a dispute arises from the transaction.

    This article was originally published by Shackelford, Bowen, McKinley & Norton, LLP. in April 2019.

  • Tracey Cheek posted an article
    What Do I Want the Seller to Fix see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, shares what a buyer should negotiate that the seller fix before the purchase.

    The pre-purchase inspection report will drive the negotiation. It will determine what must be fixed; what should be fixed; and what could be fixed later at some other point. What “must be fixed” are all airworthiness items and Airworthiness Directives. What “should be fixed” relates to operational integrity items. All else falls under “what could be fixed later.” Generally, the buyer wants the seller to cover the cost of all AD issues.

    Of course, there are exceptions to consider. Let’s say the seller’s estimate to fix all the AD-related squawks is $100,000. Let’s say s/he knows of an A&P with whom they have a good relationship. The A&P says the work can be done for $80,000. In that case, it may be more attractive for that buyer to negotiate a price reduction of $100,000 instead of having the seller fix those items. The buyer could realize a 20% savings. But in this scenario, the logistics involved in obtaining a ferry permit and flying the aircraft to a mechanic’s base must also be factored in. If those additional costs approach the $20,000 the buyer hoped to save, it might be better to put the onus back on the seller.

     “What should be fixed” can be considered those items that may have an operational or usage impact but don’t otherwise jeopardize the airworthiness of the aircraft. For example, a spot of corrosion the size of a baseball on the rudder should be fixed. But if the buyer’s intention is to repaint the aircraft anyway, it might be better to negotiate a price reduction than to make the seller eliminate the corrosion pre-sale.

    An intermittent HSI or DGI are examples of “what could be fixed later.” If the buyer’s intention is to upgrade the panel post-acquisition, it’s better to lower the price accordingly and then take care of the failing device during the entire avionics upgrade.

    Determining what the seller should fix is also influenced by the buyer’s general attitude toward an aircraft purchase. Some folks don’t want to deal with any aircraft issues. They just want the plane delivered squawk free. Others have a higher tolerance for addressing issues.  

    These are some of the guiding questions an AOPA Aviation Finance advisor might ask you to help assess your personal tolerance for handling pre-purchase inspection squawks: How important is it to you to have it fixed vs. receiving credit? How long can you stand to go without fixing the item? How urgent is it that you get it replaced or fixed? What kind of relationship do you have with a qualified mechanic? How much effort are you willing to expend in finding a qualified mechanic to save some money? How does this plane’s overall condition stack up against others in the marketplace? In other words, is there enough supply vs. demand in the marketplace to give you any negotiating leverage? 

    For example, we’ve seen a recent surge in the popularity of the Cessna 182. To buyers in that market, we would advise they come prepared with a flexible negotiation mindset. You can have a particular mindset, but if you have to compare your mindset to the realities of the market, you may have to adjust it. After all, there might be ten other potential buyers lined up behind you who are willing to deal with that leaky door seal post-purchase instead of demanding “it simply must be repaired before closing at seller’s expense.” 

    Our experience and advice apply as much to the seller as it does to the buyer. A recent client wanted to sell his Piper Warrior for a price he thought fair. We advised him that an aircraft like his that fits in the flight training usage profile would likely sell for better than what he imagined he could get. We recommended a higher asking price. He took our advice and received bids even above that amount.  

    Our advisors have deep knowledge of both the market and demand. AOPA Aviation Finance has an extensively researched database and can provide guidance on the relative market strengths and weaknesses of most aircraft, from the common to the esoteric.

    This article was originally published by AOPA Finance on November 18, 2019.

  • 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
    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 Aerlex.com on September 12, 2019.

  • Tracey Cheek posted an article
    How Long Should You Keep Your Business Jet? see more

    NAFA member, David Wyndham, Vice President with Conklin & de Decker, discusses your plan on how long you should keep your business jet.  

    When buying a business jet, it’s important to have an idea of how long you will own the aircraft. But where do you begin your analysis? David Wyndham assesses not only why, but how you should build a plan…

    A client was recently looking at how the cost of owning their first business jet compares to a jet card or block charter. Their expected annual utilization is 350 hours and they plan to operate between two continents, requiring a Large Jet. They ultimately chose not to purchase the aircraft.

    Why did they choose not to own an aircraft? In short, their expected utilization period only covered the next two-to-three years. After that the client expected to retire and fly substantially fewer hours. In this case, a very short-term of ownership, combined with the projected decline in the aircraft’s residual value, meant the total ownership costs favored a well-structured jet card program over outright ownership.

    There is no ideal length of time to own a business aircraft, however. The ideal will differ from one prospective owner to the next. So what are the key considerations that a buyer should take into account when determining the length of ownership?

    Mission Changes

    Changes in the primary mission will often dictate a change of aircraft to one that is a better fit. For example, one flight department suddenly needed to fly much longer trips following a merger. The existing aircraft lacked the necessary non-stop range, creating the need for a replacement aircraft.

    Likewise, if the need to carry a certain number of passengers changes then an equipment change could be required. Mission requirements could dictate a smaller aircraft or a larger one. 

    For example, there's no need for a 12-passenger Long Range Jet if the primary mission changes to short hops with fewer passengers.

    When the mission changes, it's important to establish if these are for the short-term or will be more permanent. A short-term change in mission or hours to be flown might be well-served by charter or a jet card. As a part of your acquisition process, you will need to see if any foreseeable mission changes are likely to occur, and if so, when and for how long.

    Changing Costs

    As an aircraft ages, it requires more maintenance to stay reliable. The time needed to perform that maintenance tends to increase. The costs of operating a newer aircraft are therefore lower than older examples. If the economics of the newer aircraft are lower than the older one, it can further support a change.

    For business-use aircraft, taxes may be another consideration when deciding how long to keep the aircraft. There are some companies that maximize the tax depreciation of the aircraft as aggressively as the tax law allows and, once depreciated, these companies often elect to replace the aircraft.

    Part of this discussion depends on the profits of the corporation and the need for tax deductions. Taxes should never be the sole reason to buy or sell your jet, but they can be a significant decision point. It's always a good idea to consult with a tax expert for further guidance.

    Maintenance, Technology and Parts

    Maintenance Factors: Calendar requirements for travel, advances in technology and the ability to obtain spare parts after an aircraft has been out of production for many years are among the other considerations for determining how long you should plan on keeping your jet.

    If the aircraft is flown a lot, the increased calendar availability of a newer aircraft needs to be factored into the equation. Older aircraft can be down for maintenance more than 50% of the time, which necessitates significant supplemental lift. 

    How might an aging aircraft fit with your projected mission needs five years from the time of purchase?

    Technology Factors: New technology that is required for ATC, navigation and increasing safety may not be cost-effective when modifying older aircraft. For some business jets, updating systems to a modern ‘glass cockpit’ suitable for global navigation can exceed $1m or more. For the older global jet, it may not be worth spending that money. This must be assessed at the time you’re buying a jet.

    Parts Availability: For much older aircraft with fewer left flying, the ability to find spare parts, irrespective of cost, makes the aircraft less able to meet its schedule. A rule of thumb is that if less than half the fleet is still flying, the aircraft can be considered an ‘end-of-life’ model – in which case, you may need to develop a plan for the aircraft’s scrappage once your planned term of ownership is finished.

    In Summary

    If the long-term mission needs are not likely to change, then the decision should center on costs. The costs of keeping or replacing the aircraft should be calculated using a life-cycle cost approach to arrive at the best financial solution.

    This approach considers not only the operating costs but also current and future values. It may also include taxes and the cost of capital.

    In summary, there is not one right answer for how long to own a business aircraft. The timing depends on the age of your aircraft and on the costs of owning and operating it. I’ve seen owners who change aircraft every five-to-seven years and some who keep an aircraft 20 years or longer.

    This article was originally published by AvBuyer on March 6, 2019.

  • Tracey Cheek posted an article
    Positioning Oneself in a Seller's Market see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, shares his strategy for positioning yourself in a buyer's market.

    In a seller’s market, the best way for a buyer to position themselves is through a three-pronged strategy of pre-approval, extra liquidity and nimbleness. Buyers who finance may find themselves up against cash buyers. That’s why being nimble is so important. The buyer may have to make an offer on multiple planes before they finally get into first position on a transaction.

    If you think you’re able to pay cash for a plane with the intention of getting it financed after the fact, make sure the transaction goes through proper escrow channels all the way to closing. AOPA Aviation Finance knows from experience that being pressured by a seller into purchasing a plane quickly without all the proper due diligence leads to bad outcomes more often than not.

    Many buyers are aware that incomplete logs, damage history, or a title with a cloud over it are reasons for a finance company to nix the deal. However, in this era of heightened security measures, uncertainty where (and to whom) the money from an aircraft sale went might also prevent the ability to obtain financing. Not to mention, subject a buyer to unwanted scrutiny from one or more three-letter government agencies post-closing.

    Finance companies have a regulatory obligation to follow the money. They must vet not only the buyer, but also the seller as well. This is done in order to ascertain whether money from a cash deal is destined for a bad actor on a list of prohibited persons who might possibly funnel the money to an organization on one of a number of “bad guy” lists. The simplest way to protect yourself from such close scrutiny while still preserving your potential for financing is to have the transaction go through escrow.

    Buying a high-quality airplane in a seller's market has a lot to do with timing. In past seller's markets like this one, AOPA Aviation Finance has seen frustrated clients try two distinct tactics to improve their chances when their timing was off: offer a buyer well above asking price; and/or settle for a lower quality airplane.

    We like to advise our clients that a tight market is a particularly important time to maintain objectivity, despite understandable temptations to the contrary. AOPA Aviation Finance helps a buyer by keeping a dispassionate perspective. However, in those instances when a buyer simply cannot remain objective, we counsel them to be prepared for one of three scenarios: 

    1. A person dead set on paying more than where a plane ”book’s out” with the pricing digest guides needs to be prepared to pay for a valuation to justify why the plane is worth more, or
    2. They need to be able to shell out the difference between where it books and the asking price--in addition to the regular down payment, or
    3. A combination of the two

    Lenders will finance an aircraft only on value as determined by an independent third party so the difference between that value and the buyer's asking price will have to be made up by the borrower. If a buyer can't afford to make up that difference without changing their global financial picture, AOPA tends to advise against the deal.

    Some clients feel that settling for a lesser value aircraft at least gets them a plane. For instance, pursuing a well-appointed TBM 700 because they lost out on one too many highly sought-after TBM 850s. The thing is, it's very likely other frustrated buyers have drawn the same conclusion. They too flood the market, which boosts the popularity of TBM 700s, which artificially boosts their prices. Short term win, but long-term loss. That's because the market will inevitably reverse. When it does, the 700 will likely depreciate faster and farther, thus commanding less in resale as a result. 

    Is it worth it to bet that you'll use and sell that lesser plane before the market turns? Is it worth it to take that risk in a market whose output is only a few thousand aircraft annually, and whose market is heavily dependent on a robust economy? A conversation with an AOPA Aviation Finance expert can help guide your decision-making and help hone your acquisition strategy.

    This article was originally published by AOPA Aviation Finance Company on July 8, 2019.

  • 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 aapplegate@aerlex.com.

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

  • NAFA Administrator posted an article
    Strategic Thinking When Acquiring or Selling An Aircraft see more

    In this podcast, NAFA member, Rene Banglesdorf, CEO of Charlie Bravo Aviation, discusses with NAFA member, Tony Kioussis, President and CEO of Asset Insight, LLC, several of the key topics connected with acquiring or selling an aircraft.

    René Bangelsdorf discusses aircraft acquisition and disposition strategies, and her firm’s comprehensive suite of Business Aviation services: In-Depth Research, Marketing & Sales, Acquisitions, and Advisory Services.

    Topics covered include: 

    • Determining the best aircraft to meet a first-time buyer’s private air transportation requirements. 
    • Points to ponder in determining whether to acquire a new, versus a pre-owned aircraft. 
    • The benefits one can secure by utilizing an aircraft Acquisition Consultant and/or a Sales Broker. 
    • Factors to consider when deriving the Offer Price for an aircraft. 
    • The challenges of refurbishing or upgrading an in-service aircraft prior to its acquisition. 
    • The pre-purchase inspection – how much scrutiny is enough. 
    • The costs and benefits associated with Professional Aircraft Management. 
    • Chartering your aircraft – does it really reduce your operating cost? 
    • Determining the optimum time to replace your aircraft. 
    • Optimizing the value, and marketability, of the asset at the time of sale.

    About René Banglesdorf

    René is co-founder and CEO of Charlie Bravo Aviation, an Austin, TX-based company that buys, sells and leases corporate aircraft worldwide. She applies a background in business journalism and marketing from several industries to the company she started in 2008. Charlie Bravo works with government entities, non-profits, corporations both large and small, and private individuals, and has closed deals in more than 40 different countries ranging from hundreds of thousands to $30m+. 

    René is part of an elite group—only 4-6% of high-level aviation positions are held by women in North America and Europe. René serves as a spokesperson for Business Aviation and women in aviation in speaking and press appearances all over the world. René serves on the Advisory Board of the International Aviation Women’s Association. In 2018, she held organized and emceed the IAWA Inaugural GA Women’s Leadership Forum, with more than 100 female leaders from the industry in attendance—and in 2020, took that same forum virtual. 

    In 2020, René was selected by US Secretary of Transportation Elaine Chao to join 29 other women on the DOT’s Women in Aviation Advisory Board. The purpose of the WIAAB is to develop strategies and recommendations that would encourage women and girls to enter the field of aviation. The WIAAB will assess education, training, mentorship, outreach, and recruitment of women in the aviation industry and make recommendations to the President and Congress. 

    René is an active member of the National Business Aircraft Association and the National Air Transportation Association. She serves as an advisor to the Ohio University Department of Management and Strategic Leadership. René also sits on the advisory board of Wingform, an aircraft transaction software company. 

    In November 2019, René was named as a Business Accelerator Coach for Michael Hyatt & Co, one of the fast growing and most widely recognized leadership training companies in North America. Along with the rest of the team, René helps overwhelmed, successful leaders get the focus they need to win at work and succeed at life. 

    To satisfy her passion for writing, René is an editorial contributor to several aviation business publications. Her latest book, Stand Up: How to Flourish When the Odds are Stacked Against You (April 2019) is available on Amazon, or anywhere books are sold. René also hosts a podcast called Defying the Status Quo, on which she interviews women who are crushing it in male-dominated industries. She launched a video podcast with AvBuyer in April 2019 interviewing corporate jet pilots about the planes they fly and their adventures in aviation. View the latest Insiders Guides with René Banglesdorf video series.

    To read a transcript of this podcast, click here.

    To listen to the podcast, click here.

    This podcast was published by Asset Insight. LLC.