Tracey Cheek posted an articlePreparing 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 email@example.com.
This article was originally published by Aerlex Law Group on May 8, 2019.
Tracey Cheek posted an articlePre-Purchase Inspections: Don’t Take a Hit at Time of Sale see more
NAFA member, George Kleros, Senior Vice President of Strategic Fleet Management & Support with JSSI, offers advice to help you avoid taking a hit on the value of your jet when selling.
When the term ‘Pre-Purchase Inspection’ is mentioned, it can create various thoughts in the minds of aviation professionals – not all of them pleasant. Why is that?
The main reason is that this one event can lead to unexpected, costly maintenance issues that may impact the sale of the aircraft.
There are at least five areas that should be addressed to adequately prepare for a Pre-Purchase Inspection, helping you avoid unexpected hurdles when it’s time to close on the sale of the aircraft.
Borescope – Know Before You Go There
For decades, performing an engine borescope prior to acceptance of the aircraft purchase has been a common occurrence. Many people believe the borescope is a standard procedure that is required, and that the transaction won’t move forward without it. However, the need for a borescope of the engine depends on how the buyer and the seller structure this process into a sales agreement.
There are areas that should be well understood before finalizing a sales contract and beginning the Pre-Purchase Inspection.
The first question the seller needs to ask is whether the aircraft hull insurance provider accepts any adverse findings, such as Foreign Object Damage (FOD), if the borescope is performed outside of an incident?
Performing a pre-purchase borescope may not be considered an ‘event’, and if the hull insurance provider does accept the finding(s) under this elective inspection, you need to understand what the underwriter is contracted to cover.
Typically, only direct damage is covered, while restoration of worn assemblies and parts will not be covered. Depending on the engine’s age, time before overhaul, or total time since last shop visit for on-condition engines, the newly discovered FOD could launch a premature overhaul event that may range from $400,000 to $4m in out-of-pocket costs for the seller.
If the aircraft is enrolled on an hourly cost maintenance program, from JSSI or an OEM, it is critical that the seller contact the program provider to understand allowances under their contract and the conditions under which the program coverage will be applied.
All the maintenance programs I have observed over 30-plus years in the industry have not covered FOD and do not recognize work performed outside of the required scheduled maintenance checks.
Maintenance programs vary greatly on how covered items are addressed when an engine enters a shop for a FOD event.
Many programs will cover airworthiness findings unrelated to FOD, but elective inspections or borescope inspections that are out of sequence may not be eligible for coverage. The key is to contact your maintenance program provider and seek permission first. Don’t expect forgiveness later.
Understand Your Sales Agreement Before the Inspection
The sales agreement is the primary tool used to control the process and define the terms of the purchase. Simple sentences or phrases within the agreement are typically not that simple. Interpretation of these words in the contract can drag out or collapse a deal. For example, a term such as ‘discrepancies discovered’ versus ‘airworthiness discrepancies discovered’ can make a significant difference.
In one scenario I witnessed, damage was discovered in an engine following a borescope inspection. The FOD was minor, and the OEM’s engineering team issued a technical variance allowing the condition to continue with no special changes to the maintenance schedule.
When the owner was ready to sell the aircraft, the sales agreement stated any ‘discrepancies’ – and this condition was a discrepancy. It was outside of normal, but acceptable to the OEM with a release letter.
The buyer felt strongly that there was a risk and challenged the seller to correct the problem, or the sale would not proceed per their agreement. The result was an unexpected ‘out-of-pocket’ expense to the seller that could have been avoided.
Know How Much ‘Your’ Aircraft is Worth
It is important to set a reasonable expectation when planning to sell an aircraft. To do this, you should understand what your aircraft is worth prior to listing it for sale. Having an appraisal performed on your aircraft by an accredited appraiser is a valuable exercise.
It can also be beneficial to keep tabs on the aircraft’s value with an appraiser as part of the life cycle plan of owning such an asset. The in-service market values of business jets today have been steady but not stellar and can change significantly from month-to-month.
Just because there is a jet like yours ‘For Sale’ online for an asking price of $8m, you should not expect your aircraft will be worth the same, especially 60 or 90 days later.
Depending on the current inventory, the length of time on the market, the interior layout and the maintenance condition of the aircraft, the value could easily swing drastically in two very different directions.
Hire an Expert
As a seller, you may feel that selling the aircraft without a Pre-Purchase Inspection is advantageous and that avoiding this process could save money. However, the risk of not conducting a Pre-Purchase Inspection usually outweighs the savings and could possibly lead to legal issues if the buyer feels you misrepresented the aircraft.
It is good practice to consult or hire a technical expert to represent you during an aircraft sale.
Before signing the sales agreement and approving the pre-purchase checklist, it is important to have a technician that is an expert on your aircraft type to work with you and the broker representative. They will be there to keep the pre-purchase fair and balanced and help select the proper facility to perform the Pre-Purchase Inspection.
All parties want to be protected, but there are reasonable limits as to how much should be reviewed and looked at, as well as any technical inspections that are essential for the pre-purchase.
Match the Logbooks with Maintenance Tracking System
A very simple yet important check to perform is comparing the aircraft and engine maintenance status report to the actual maintenance entries in the aircraft records. This review could be another task you have the maintenance expert perform for you prior to listing the aircraft.
There will always be a few errors, but most will be very minor. However, during the audit you don’t want to find a major documentation issue that will prolong the Pre-Purchase Inspection when the timing is critical.
A major finding may create other concerns, ultimately driving the buyer or seller away from the deal. This could also ground the aircraft until the issue is corrected at considerable costs.
There are numerous tasks to consider when preparing to sell an aircraft in today’s market. But if you have these five areas covered, you will minimize your risk of ending up on the short-end of the transaction.
This article was originally published in AvBuyer on March 7, 2018.