Back on the Plate, Pre-buys Still Face Post-covid Challenges

The days of the pandemic business jet buying frenzy are over, and so too, for the most part, are decisions to skip pre-buy inspections in desperation to secure an aircraft. However, lingering issues such as supply chain and MRO capacity, along with new concerns such as tariff-related market uncertainties, are still proving challenging for the pre-buy inspection process and, as a result, threaten to complicate certain aircraft deals.

Jay Mesinger, who is CEO and president of an aircraft brokerage that has been in business for more than 40 years, Mesinger Jet Sales, has an adage about pre-buys: “Can’t live with them and should never live without them.”

However, years of practice surrounding pre-buys were upended during the pandemic. When the pandemic began, Mesinger explained, the industry was facing a standstill, initially. “Customers didn’t want you to come visit, so corporations pretty much stopped flying,” he said.

That changed the number of aircraft bought and sold. “We looked at the market and thought it’s going to go down between 5% and 20%.” Mesinger feared that older aircraft values would plummet even further, reminiscent of the late 2000s, when values dropped between 50% and 70% overnight.

But the market took an unexpected turn. “We were completely wrong,” he conceded. Flying returned, and values went up as much as by 40% over a year’s time during the pandemic.

“There was so much wealth created during the pandemic in all sectors of the economy, and also there was so much fear created during the pandemic about public travel. People didn’t want to go to airports,” Mesinger explained. At the same time, there were several years of up to 100% expensing, or bonus depreciation, tax incentives.

“First-time buyers came into our industry like never before. Thousands of first-time buyers came in during the pandemic to take advantage of the tax benefit, take advantage of not having to fly publicly, and enjoying this kind of travel,” he said.

As a result, the entire sector saw a bump. “During that time, sellers got greedy. It became a seller’s market, and buyers were paying whatever they had to get an airplane regardless of common sense, good value, statistics, and demographics,” Mesinger said.

The supply of available airplanes went from a balanced market of 7% to 10% of the fleet to almost zero. “An airplane would come on the market in the morning, and by lunchtime, there’d be 10 full-price offers.”

Wanting the Least

Sellers would start bidding wars, not just over price, but “who is going to want the least. Wanting the least was the pre-buy,” he added. “Sellers said you’re not going to get a pre-buy. You pay me the most, you come into my hangar, you look at the records, you take it around the patch, and you buy it or not, period.”

As a result, Mesinger maintained, “Huge numbers of people began to forgo the pre-buy for the opportunity to just buy. Terrible. Terrible idea.”

In fact, things became so bad on that front, Mesinger “pretty much stopped” on the acquisition side of the business for a short time. “We wouldn’t suggest that anybody buy an airplane without a pre-buy, and sellers weren’t allowing it,” Mesinger said. “The lack of pre-buy or due diligence was a critical factor in our industry.”

Particularly with older aircraft, people have found corrosion in areas that are typical and could have been caught through a full pre-buy. Corrosion can be a significant finding.

If significant findings such as corrosion slip through, they erode the airplane’s value. “Had you been allowed to do the pre-buy at the time of purchase, you would have had a contractual ability to reject the airplane. You paid the highest dollar for the airplane during the pandemic, and you paid it without the knowledge of what the mechanical integrity of the airplane was.”

David Mayer, a member of the Global Aviation Group at Shackelford, McKinley, & Norton, agreed that during the pandemic, “The buyers wanted lift, and they knew that there’d be other buyers in the wings. They sometimes skipped all diligence other than a books and records review and confirming airworthiness. It was a different time when waiving inspections seemed imperative to anxious buyers. I said then, and I still would say, that that’s not a good idea to waive or bypass a thorough inspection unless you have a big wallet and don’t mind seeing your airplane sit like an expensive paper weight pending or during repairs.”

Mayer underscored the importance of a full pre-buy inspection. “Most buyers today remain objective and arrange appropriate pre-buy inspections based on expert advice on the scope and objectives of an inspection. However, I’ve seen other buyers fail to do an adequate pre-buy inspection, which leads to finding squawks and other aircraft-related issues post-closing, like corrosion, broken systems, or damage. The finding may not affect airworthiness, but they have reduced the aircraft’s value, availability, or utility,” Mayer said. “Buyers can find out quickly that omitting or limiting an appropriate inspection is a bad idea. It sometimes confounds me why they substitute their trust of the seller and need for speed to close their purchase for a good inspection of a complex machine.”

He pointed to other important areas of the due diligence process. During the pre-buy process, as a key element of a broader inspection, a facility should examine the paperwork, looking for compliance with the manufacturer’s recommended maintenance and inspection schedules. The delivery condition in the aircraft purchase agreement should specify standards for passing an inspection.

“Non-standard items are essentially red flags that people need to investigate, repair, and price into the transaction,” he said. “Quality inspection facilities will alert a buyer to any of these items. The parties need to discuss whether there will be a deal if the seller cannot or will not satisfy a delivery condition. If this happens, some buyers may seek an accommodation of price, share repair costs, or walk away from the purchase, depending on the problems found.”

However, problems can arise if the buyer really wants a particular airplane and gets emotionally attached, Mayer said. “They accept the airplane despite its known or unknown flaws and don’t look forward to selling the airplane to prospective buyers in the future.” Later on, someone else may pass on the purchase, require extensive repairs, or insist on a price reduction of that airplane, he said. “Full inspections and repairs help mitigate the risk that the airplane’s condition can kill a future sale deal.“

‘Slammed’

Now, the business aircraft market is better balanced, Mesinger said. While no longer a seller’s market, it’s not necessarily a buyer’s market right now. “That’s a healthy place to be,” Mesinger said. "There’s more inventory for sale. They have an opportunity to negotiate for price and make smart, intelligent decision-making with respect to evaluation—and they have a chance to do the thorough due diligence and do a pre-buy.”

While the market has right-sized, not all the Covid challenges have eased. “Our maintenance facilities were slammed during the pandemic, not doing pre-buys necessarily, but because there was so much flying again,” Mesinger said. “Shops were just as full and busy as they could ever be, and then they suffered from supply chain issues.”

For sellers, space availability can be daunting. Sellers typically were asked to stop using their airplane between the time of the contract and inspection. That was common and was not considered a big ask. But today, it could take a month or two to get it into an available slot in a shop.

“It’s impossible to say to a seller, ‘Hey, you got this airplane you’re paying for these two months, and you can’t touch it,’” Mesinger said. “So that brings up a whole other set of issues. A seller can get very nervous about not being able to start the process of selling their plane after a contract for two or three months because the market could shift.” A buyer could walk away from a deal or demand different terms. “That time creates all kinds of headaches in a transaction.”

Alan Monk, manager of airframe service sales for Duncan Aviation’s Battle Creek, Michigan facility, noted that demand for pre-buys is cyclic and typically depends on the economy. “It seems to be strong right now,” he noted.

Monk agreed that space could be tight, but added, “We do our absolute best to take every single one that we can.”

He said the capacity issue is likely the same at most MROs. “Coming out of the pandemic, backlog has just been way out beyond what we normally have seen for years and years. We’re talking people wanting to book 12 months out for small annual type inspections and 18 months to 24 months for anything significant,” Monk said. “That really makes us stretch and try to find solutions for pre-buys, which typically have nowhere near that kind of lead time.”

By the time a shop gets the call for one, typically, there is a letter of authorization signed, and the parties may be close to a purchase agreement. “They’re going to want to move the airplane late that week or early the next week, and sometimes, MROs can't respond that quickly,” he said. “We try our best. We have some overflow capacity and hangars, and we can usually put together enough labor, but it’s a challenge.”

While the lead time for them varies based on the cyclic nature of the pre-buy, Duncan advises brokers: “Regardless of what you hear as far as our backlog, [reach out] and we will put our best foot forward.”

Duncan typically will assemble a team with expertise in the make and model of the aircraft incoming for a pre-buy inspection. The company tries to balance the work among them between scheduled inspections, completions, and modifications. “When a pre-buy comes in, we can adjust teams and work schedules a little bit,” he explained.

As far as the inspection itself, Duncan will accept specific lists that meet certain parameters. But the MRO has its own pre-buy check list that includes routine inspection items, functional checks, and visual checks that vary per airframe model.  "We also have optional items that can go a little deeper if the buyer wishes."  

The scope of the pre-buy is laid out in advance of the work, Monk noted, so buyers and sellers are aware of what it entails.

“The biggest thing is establishing what the pre-purchase inspection requirement is up front with the parties involved,” said Suresh Narayanan, founder and CEO of Jets MRO. “It's not an official inspection.” Jets MRO will offer its own pre-purchase checklist, but he added, “We need something to sign off on or else it could turn into an unmanaged process. That’s what we want to avoid. The biggest thing is working with the parties to establish what is the requirement.”

Duncan will typically have its “squawk list” or discrepancy list after about 10 to 14 days, Monk estimated. “From there, there's usually some negotiating between the representatives on both sides, and then if there are any discrepancies found, somebody will approve the work.”

Once completed, the aircraft is ready to return to service. However, he noted: “From the time we are done [with the inspection] until we can return the airplane to service, that gap can be days, weeks, sometimes months, depending on the communication style between the buyer and the seller, how willing they are to work with one another, how quickly whoever is going to pay for the discrepancies approves us to work them.”

And it varies by airplane. “I’ve seen them go as quickly as two or three days; I’ve seen them go two or three months.”

“If a problem is found, it can be weeks or even months to resolve it,” Mesinger agreed. This is particularly true if the problem is fairly extensive or complicated and if the necessary parts can’t be readily obtained. Then it could become an issue of how the costs of the work are passed along. That could become a negotiation between the parties.

Generally, the seller does the repairs within the scope. But if the work increases the cost significantly, the seller may hesitate to solely foot the bill. That may open the door to a negotiation, possibly a change in purchase price.

As far as primary problem spots, corrosion is a common theme across all models, Monk said. Some aircraft will have more than others. Fuel contamination, depending on where in the world the airplane’s been, is another major issue that comes up. Most of the rest of the issues tend to be less impactful, he said.

“We’ve seen the output of a bad pre-purchase inspection,” said Jets MRO’s Narayanan. While doing a simple repair on a Cessna Citation, mechanics found severe corrosion from a lavatory that had been leaking for two years. “I poked my finger through the belly of the aircraft,” he said, “it was so bad.”

The Citation had just emerged from a Phase 5 inspection and then the pre-purchase inspection, neither of which caught the corrosion. “They had a bunch of issues that 100% should have been caught during the pre-purchase inspection,” he said. “We had to do this big repair to save it from scrap and basically redo the entire inspection that they already paid for.” The new owner, who thought he got a great deal on the Citation, had to wait another six months to get back in the air.

Supply Chain Woes

A lot of the timing of the repair process also comes back to the supply chain. Before the pandemic, the supply chain wasn’t usually a thought. “We didn’t really have supply chain issues pre-pandemic. Then all of a sudden, we had supply chain issues on toilet paper and paper towels and engine parts and all kinds of things,” Mesinger said.

While it’s better, issues persist. Shops still can’t get some parts, and an aircraft could sit for a few months awaiting them. “It’s grounded because it’s not airworthy without that corrective action,” he said.

Mesinger cited as examples auxiliary power units (APUs) and landing gear. “If an APU comes out of an airplane and has to go into a shop, it’s not unlikely it will get stuck in the shop for two or three months because of a part,” he said. As for landing gear, he said, this “is the worst to find.”

“When you have an airplane sitting in a shop and the landing gear has been pulled out from underneath it and it’s on jacks, that’s wasted space for the shop because they can’t move the airplane,” he noted. “So, it creates all kinds of issues.”

Another big issue involves engines, Mesinger added. “There are very few loaners. Engines come out and have to go off-wing and ship out to get work done, and they can’t get parts, and they can’t get a loaner. The airplane is sitting in a shop somewhere without an engine and can’t be flown.” Engines can have much longer wait times, six months or more, he further said. “So, supply chain is still a real issue right now.”

“There is a lot of unknown in the inspection and repair scenarios,” Mayer said. While most inspections and repairs last a few weeks or months, he did say he has seen customized repairs that extended more than a year.

“I have one client who found very extensive erosion that required rebuilding parts of the airplane.” The total cost represented a high percentage of the original purchase price of the aircraft. “Because some parts and replacement hull sections of the airplane had to be custom-built by the manufacturer, it took a very long time to receive the hull sections and install them.”

He also has heard stories where a windshield couldn’t be found anywhere in the world for a preowned airplane. “It takes months to find one or get one that you do find.”

Monk agreed. If removing and inspecting the windows is part of pre-purchase evaluation, quite often technicians will find issues with them, he said, and “the lead time on some of those can be significant.” Duncan will try repair options rather than replacement of those when possible. He further agreed that landing gear can also be difficult to obtain.

Ultimately, Monk has found, “the supply chain is better, but it still isn’t where it was pre-pandemic, and I don't know when it’ll ever be.”

Throwing another wrinkle into this is tariffs, or the uncertainty of them. “We’re creating another complexity in our supply chain issue and cost issue,” Mesinger said. “It’s also the parts, it’s not just the whole airplane, that could be impacted by the tariff. These parts go back and forth between Canada and Mexico.”

Mayer expressed concern that the potential U.S. and reciprocal tariffs may exacerbate the unavailability and costs of parts, components, and services. “The unpredictability of tariffs makes the risk calculation so difficult that some sellers have already pulled back from selling their aircraft or even consider defaulting on a signed sale transaction,” he said.

Shortening the Pre-buy

Another concern for Mesinger is the temptation to shorten the pre-buy. “To this day, there are dealers that are instructing buyers that an airplane just went through a big inspection six months ago or a year ago, and there’s no need to do a full pre-buy. ‘Let’s just take it around the patch, do a foreign object damage inspection of the engines, and look at the records.’”

Some buyers go along with that, he said. “That’s not a way we’d sell an airplane. I don’t care what was recently done to it.”

Jets MRO CEO Narayanan agreed. “We’ve had people ask us, ‘Can you do a general visual inspection and just sign it off?’ We stay away from those. We focus on if we do our job, we should earn another customer. We get a lot of folks asking us for what we’ll call obscure pre-purchase inspections, and we say no to those, because I think it's a recipe for disaster.

“I’ve seen the output of non-defined pre-purchase inspections, and every MRO is different. They’re not all professionally standardized. We seek to be very professional in how we standardize it to avoid an issue like that. We have folks ask us, ‘Can you be cheaper or faster?’ We stay away from those discussions because we know what the output is, and it could be subpar maintenance or things signed off that weren’t properly looked at. We want to avoid that world completely and maintain a high level of reputation professionalism.”

Mesinger noted that if a seller is trying to dissuade duplication of work, it raises the question of whether there is something they don’t want found. “A different set of eyes [and] a six-month period between the event [may uncover issues]. Corrosion moves fast. That’s the kind of thing that you typically would have missed, corrosion.”

However, Mesinger does try to honor “nearby” inspections if done by a known facility, and said there may be some carve-out of some inspections.

Mayer is also seeing some opt out of a robust inspection, even though they should be the norm. “There’s a propensity to accept airplanes having a minimum inspection. That means a purchase from an inadequately informed position,” he said. “If an airplane has been recently inspected or gone through a major maintenance check, and maybe a buyer only asks for a test flight, a books and records inspection, and a walk-around looking for damages. But that can turn out to be an avoidable mistake because the pre-purchase inspection may ferret out squawks that fell outside the other inspection.”

Damage to the outside may be that the hull has a dent or rock damage. “Maybe you do a boroscope, and you assume that’s good enough. That’s probably not good enough. It’s incomplete because an inspection facility can do a better review of the internal workings of all of the equipment, right down to coffee makers.”

Also, some buyers assume a newer model must not have issues. “Not so; there is an opportunity to miss a warranty repair or to cause a seller to repair items that are outside of warranty, even on newer airplanes,” Mayer said.

There may be issues that are unique to specific models, he noted. Quality brokers will know about them and should advise buyers so they are aware of them. “Making assumptions about a condition of an airplane that is well taken care of, even by a big company, is not a good idea because sometimes the owners just don’t find things, or the timing to make repairs occurs later than the inspection date,” he said. “There are a lot of reasons that people might find [needed] repairs after closing that they could have found if they completed a robust pre-buy inspection.”

But those types of pre-buy inspections, “a walk around plus review of books and records, are not uncommon still,” Mayer said. This pushes the risk of some bigger problems onto the buyer. But if they are emotionally attached to a particular airplane, “they’ll go ahead and buy it and take the risk. I’ve seen people take the risk and be sorry they did because they do find squawks or annoying broken items either during flight or on the ground.”

He advises having a certified inspection facility run a proper inspection that will satisfy the need for information to determine whether the delivery condition is met at a minimum. The lawyers need to clearly describe the delivery conditions provided by a knowledgeable broker or technical consultants, he said.

Another aspect buyers must consider may be where the aircraft was stored and/or operated—for example, by a desert or the sea. That informs an inspection that looks for corrosion caused by these elements.

A country’s regulatory regime covering maintenance standards also should be considered.

With limited capacity and concerns surrounding imports, some buyers may opt to use non-U.S. inspection facilities. Mayer noted that the key there is to make sure that they adhere to standards that meet the requirements of the FAA or wherever the aircraft is being imported.

As for the paperwork, Duncan looks for gaps in maintenance, inspections out of compliance, and work done without proper return-to-service paths, among other areas. “Obviously, earlier serial number airplanes have much more data to sort through. For newer serial number airplanes, that process goes a lot quicker,” Monk said.

It also depends on where the aircraft is registered, Monk agreed. Duncan’s International Compliance teams will work through the differences in maintenance requirements between the different authorities, he noted.

Overall, though, “the logbook and records research typically takes a little longer than the actual look phase on the airframe,” he noted.

Despite the obstacles of the pre-buy, the preowned market has remained stable after the pandemic, with more inventory encouraging more sales. And the pre-buy is remaining a central part of that transaction.

“I think they’re vital,” Mesinger said. “I think that they are a pain. They cause consternation, they cause headaches, they cause a lot of stress, but they’re absolutely critical when you’re purchasing a piece of equipment that’s this expensive and this complex.”

—Matt Thurber contributed to this article.