Aircraft are complex machines, and the acquisition and sale of one can become equally complicated, if not handled appropriately. Below, we discuss five things we commonly see derail transactions on an aircraft.
- Lawyers – For the most part, they bill by the hour. If they spend more time on your transaction, you give them more money. Elementary school math. We frequently see completely rewritten letters of intent or purchase agreements. The back and forth negotiations between attorneys on both sides of the transaction take time…and money. And sometimes a frugal buyer or seller gets frustrated and abandons the deal. We’ve had it happen twice this year. The frustrated party moves on to a new plane or a new buyer, after paying $50,000 or more in pointless legal fees. To overcome this obstacle, time limitations for producing and reviewing documents can be included in the letter of intent or purchase agreement.
The other area where we see lawyers blow up deals lies in inexperience. Aircraft transactions have their own quirks and nuances, and a general contract attorney is not typically an expert in aviation transaction law. There are many tax and operational regulations considerations that should be addressed in both planning for operations and transaction documents. Hiring a reputable aviation attorney is a good idea. Ask how much they charge for a typical transaction. If you’re really daring, ask them for references from aircraft brokers they’ve worked with on other deals.
- Pilots – I don’t pretend to be a pilot or a mechanic, and you certainly wouldn’t want me to fly your plane or attempt to repair any component on your aircraft. Even though your pilot may have a lot of knowledge about planes, that doesn’t mean he or she is an expert on negotiations, business practices, contracts or tax liabilities. In giving you advice on a particular aircraft, pilots may have ulterior motives on what they want to fly in the future. You definitely don’t want a pilot representing your plane if you are selling, and he will then be looking for new employment. I know, seems obvious, but it happens.
- Extra-zealous service centers – Where you choose to take your aircraft for a pre-purchase inspection matters, whether you are buying or selling. When times are slow, they could be looking for extra work. Smaller shops may misrepresent their expertise. And less-scrupulous mechanics will recommend work that doesn’t need to be done. It’s wise to have a technical representative looking out for your interests, especially if there are big calendar inspections being done as a part of the PPI.
- Undisclosed damage history or incidents – Nothing leaves a more bitter taste in someone’s mouth than sending a technical representative to look over a plane and having him report back that there was a recent lightning strike or substantial corrosion repair that was not disclosed when the conversations about the aircraft began. It begs the question, “what else do we not know about this aircraft?” In the U.S., alterations to an aircraft require a Form 337 to be filed with the FAA. This is one place that damage history is revealed. If the “incident” is repaired with new parts, it doesn’t require this form, but it still will be noted in the logbooks. Make sure you ask qualifying questions about the aircraft’s history before making an offer.
- Incomplete or disorganized records – Incomplete logbooks almost always kill a deal—or reduce the aircraft’s value significantly. Sloppy record-keeping can signal less-than-meticulous attention to the maintenance of the aircraft. Detailed, well-organized records can make the difference in a sale, especially if the aircraft will need an import or export certificate of airworthiness or it will undergo conformity for an operator’s charter certificate. The records review is a critical part of any pre-purchase inspection and should not be treated lightly.
People like to get involved in aircraft purchases. Planes are sexy and there definitely is money to be made in the transaction. Make sure you vet your “help” carefully unless you just have money to throw away and time to waste.