Story ID: 
Avoiding Aircraft Transaction Turbulence
By: AIN Staff
Caption: A CALS examination of the business aviation industry’s pressing issues moderated by Jack Gilchrist, founding shareholder, director, Gilchrist Aviation Law, LLC
Word Count: 1173
The past few years have witnessed a whirlwind of activity in the aircraft transactions business. Airplanes sell practically before the ink is dry on the for-sale sign. And, while most transactions are straightforward, whether you are a buyer or seller, you still need to ensure that all your concerns are covered before the deal is done.
According to the attendees at AIN’s 2023 CALS, four factors are critical to ensuring that your next aircraft transaction goes according to plan: selecting the right airplane, a by-the-book pre-buy, transparency, and concise communications.
If the Airplane’s Wrong, the Deal’s Never Right
Today’s hyperactive market has put a new type of pressure on aircraft buyers. If you don’t act fast, that “perfect” airplane may be gone. So, identifying your needs before you start shopping is more important now than ever before.
While it may seem like a no-brainer to put your chief pilot in the lead of your aircraft acquisition team, that’s not always the best course of action.
“Chief pilots can be very useful in the aircraft purchase and sale process, but that usefulness is limited to their areas of expertise, which are aircraft operations, specifications, and instrumentation,” a vice president of a jet management company said. “The problem is, the pilot has very little experience in determining the business side of the aircraft’s mission.”
Of course, that “business side” often differentiates the right airplane from the wrong one. Range, cabin size, operational costs, and spare-parts availability are just a few things you need to consider. And that’s all before you look at the sticker price.
CALS attendees also noted that some pilots resist the “friction cost of changing planes.” In other words, they get comfortable with one type and don’t want to go through the hassles of additional training. That’s why it’s critically important to have everyone—principals, pilots, and maintainers—involved in creating a well-defined set of parameters that can be used to determine which airplane is indeed right for your missions.
Beware the “Shiny-object Syndrome”
You can’t judge a book by its cover—or an airplane by a shiny paint job. That’s why it’s vital to do a thorough pre-buy before you sign on the bottom line. One of the best ways to ensure a successful transaction is to hire a specialist MRO facility that knows the aircraft type and what to look for.
Its expertise can go a long way toward determining an aircraft’s “airworthiness condition.” That’s a term you see a lot in letters of intent (LOI) and aircraft purchase agreements (APA), and the buyer needs to go into great detail to draft the exact terms and conditions of what that means.
“The buyer’s technical consultants are on the ground and engaged in the pre-buy inspection and are ready to say yes or no on deal-killing issues like damage,” an aircraft dealer said. “The parties involved in the pre-buy inspection need to have full knowledge of the terms and conditions in the LOI and APA.”
Situations that often cause confusion are those when the aircraft is “fresh out of its inspection.” While that may seem like a ticket to pass on the pre-buy, it’s not. The recent inspection may have had nothing to do with finding corrosion, under-skin damage, or a worst-case engine issue.
As a senior flight department manager warned, “There is no situation that precludes the need to do a thorough pre-buy on any airplane—even one brand new from the factory.”
Of course, there are two sides to the pre-buy story; the seller and its representative are equally responsible for being above board regarding any known issues with the aircraft.
Nothing Up My Sleeve…
Damaged or broken components aren’t the only problem you may find during a thorough pre-buy. With legacy aircraft, in particular, you need to keep an eye out for possible issues with life-limited or obsolescent parts. Dealing with them after the fact can cost a lot.
And they’re not always the obvious things that catch you unaware. As one attendee said, “An example is an obsolete microwave in the galley. If it can’t be repaired or replaced, the closing can’t go forward because the aircraft includes ‘damaged’ parts. Things are held up until the issue is addressed to the buyer’s satisfaction.”
While it may seem like a minor point, finding an agreeable solution can add days to the closing process, especially if the sale is being handled through a third-party broker.
“Sellers know their aircraft and need to be transparent in openly identifying potential deficiencies so they can be considered and addressed early on,” an aviation manager said. “The issues won’t go unnoticed, so if they are identified up front, things will go more smoothly.”
Communication Is Key
Of course, identifying problem areas isn’t the only reason why clear, concise communication is critical throughout the transaction process. As one dealer representative said, “Communication of needs and requirements is key to getting transactions done quickly, correctly, and efficiently.
“The more questions are shared with everyone in the decision-making chain, the more likely people are to get involved,” the dealer representative added. “As much as they may want their pilot to handle the details, management should be involved in the bid and purchase process and know everything about it.”
One of the most important channels for said communications is with the legal counsels handling both sides of the transaction. “A problem with the OEMs on new aircraft sales is buyers and their lawyers who think they know more than they really do,” said an aircraft OEM sales representative. “They push for things like expansion of the manufacturer warranties into something that looks more like after-purchase parts insurance. They argue that buyers should be able to bring the equipment back for its life if it no longer works like it did when it was new.”
Those kinds of demands slow the entire process down. That’s why it’s essential to do your due diligence not only on picking the airplane but also on choosing the professionals you hire to help you with the transaction process.
Speaking of due diligence, the financial side of the transaction is taking longer today because of the increased anti-money laundering processes. It turns out that even the business aviation world is dangerous where large sums of money are concerned.
The bottom line is that when it’s time to buy or sell your airplane, you need to create a detailed plan and hire experts to ensure you can avoid transactional turbulence. The good news is that that’s pretty easy to do if we continue working together to share information and experiences.