Tight Bizjet Inventory Creating Need for Urgency, Caution

As the market for used business aircraft became white hot late last year and prospective buyers raced after rapidly disappearing inventory, industry leaders gave a cautionary tale of the need to proceed with caution. There are aircraft to be had, they said. But buyers must be prepared.  Otherwise, it can result in deals gone wrong.

Speaking at the National Air Transportation Association’s Aviation Business Conference in November, Paul Lange from the Law Offices of Paul A. Lange said the race to close preowned business aircraft deals in the face of a shortage of inventory had already began to result in legal cases surrounding unhappy acquisitions.

Lange said his office is seeing a “tremendous amount of aircraft transactions and like everybody else, we're seeing a tremendous amount of people who were not in business aviation before.”

These transactions are coming from a range of people, both new and those returning to business aviation, he said. “The challenge right now is that we see transactions that are just insane, the risk levels that people are taking,” Lange said. “Things that would never fly before are now happening. They're self-insuring. They're taking aircraft seizure risks.”

He said he had one deal where the buyer walked away from a deal where the risk threshold was literally criminal, as the seller was under house arrest in Eastern Europe. “But it still took about a day for the buyer to think about that,” Lange said. “That kind of tells you where this insane market is and that tremendous risk. It's kind of scary.”

Lange noted that people are worried about losing the deal, but they may have problems after it. “We’ve had a fair number of depositions in our office already on deals gone bad,” he noted. This involves situations such as aircraft coming from Africa with no lawyers involved and showing up with $500,000 worth of “surprises” that nobody wants to pay. 

Others involve aircraft that are imported improperly into one country and a few months later are improperly exported to the U.S. “There’s no way to fix those problems without fixing the downstream [issues],” he said.

These deals can affect aircraft management and Part 135 operators that may not know that the aircraft they take in are at risk for seizure.

Meanwhile, brokers and other legal experts speaking at Corporate Jet Investor Miami, which was held in tandem with the NATA conference, advised that customers must be prepared to move on an available aircraft, but carefully, and that they may have to look for inventory in places such Russia or China.

“Time is really a constraint in terms of trying to conduct any sort of transaction,” said Par Avion founder and president Janine Iannarelli. “But…I counsel people to still go slow because the last thing I want to do is overlook a point.”

She agreed that one of the biggest challenges is to find available aircraft and cautioned that there may be aircraft on the market but “it doesn't mean it's the right aircraft.”

Keri Dowling, president of Air Law Office, added that buyers must be “prepared to hit the ground running,” including ensuring that clients “frontload” everything as much as possible with the structure set up and the team established. And, she warned, “The mentality these days is the seller is always right,” noting that recently an aircraft buyer’s team lost a deal because they changed an inspection acceptance duration from three to five days and the seller walked away.

“You have to prepare your clients that the seller really is running the show. You need to be prepared up front and ready to go so the seller can't walk away with an asset that you really want or need,” Dowling said. As far as moving on an available aircraft, she added, “It’s a matter of single-digit hours for turnaround time these days. The days of three or four days to think about it and get your money in place and figure it out are gone.”

“Time is of the essence,” also said Jeremy Stumpf, v-p of Freestream Aircraft. “The perfect aircraft likely will not be available.”  The message is buyers need to move when they find an aircraft that may check the most boxes and “make changes to customize the aircraft after you close. The most important thing is to secure the aircraft.”

Amanda Applegate, a partner at Aerlex Law Group, advised that buyers put together teams that have expertise in cross-border transactions. “Certainly, in the last six months, I've seen far more cross-border transactions than I've seen in probably the last five years,” Applegate said. “These are coming out of registries or countries that perhaps you wouldn't have looked at before.”

“We are looking around the world for aircraft all the time,” said Hamish Harding, chairman of Action Aviation. He noted that he is finding them in places such as China, but that raises other complexities. “The Chinese sellers who used to be a bit flexible are now being very inflexible. They want everything bought as is,” Harding said. “You’re lucky if you get out of China and close in Singapore, but contracts are pretty one-sided right now.”

But he added if a buyer wants a high-end aircraft, China, Russia, and certain other countries may have them.

He also said buyers can create the sell with price. He cited as an example an aircraft owner who may be taking a new model in upcoming months and wasn’t anticipating selling just yet may be willing at the right price.

However, new buyers are coming into the market unprepared. He noted new clients will come in with dollar figures in mind without any concept of the right aircraft that would fit their needs.