Amanda Applegate

Every year as the summer draws to an end I do my best to prepare for the crush of 4th quarter closings. I expect 2024 to be a particularly interesting 4th quarter. First, in a presidential election year, transaction volume slows immediately prior to the election due to the uncertainty of the outcome. However, historical data shows that the transactions are only delayed, and the actual volume is not impacted over the course of the 4th quarter. Another interesting issue is that a larger number of older aircraft are continuing to fly while a larger number of newer aircraft are also being added to the private aircraft fleet. The increase in the number of units available for buying and selling will also increase the total number of units that are transacted. Additionally, as certain popular models continue to age, more systems, components and equipment on those aircraft are becoming obsolete. As a result, having a fully operational aircraft ready for sale is increasingly difficult and time consuming, especially as we continue to have supply chain issues with aircraft parts. Finally, finding available inspection slots is always difficult in 4th quarter. It may be more difficult than expected this year due to a compression of transactions after the presidential election and also due to the fact that some inspection facilities are limiting or eliminating pre-purchase inspection slots for older aircraft.

As we prepare for the remaining sales which will take place in 2024, certain items in the sales process can be completed in advance, resulting in a less condensed and more seamless sale. Some of these items should be done annually, regardless of if the aircraft is going to be sold, and are not a waste of money even if the aircraft is not sold.

1. Loose equipment and spare parts can be a part of the aircraft sale, sold separately, or retained. Since the Seller can decide what is being sold with the aircraft, a loose equipment list can be created in advance of the sale and anything that is not included can be priced and listed for sale separately or retained for future use.

2. When listing an aircraft for sale, an aircraft specification will need to be developed for advertising. Creating the aircraft specification and the photos of the aircraft can be done in advance of when the aircraft is listed for sale. Later, if it is decided that the aircraft will not be sold, most of these items can be reused whenever the sale happens.

3. The flight department or management company can review and organize the aircraft records to confirm they are complete and continuous.

4. A title search can be performed by an aircraft escrow agent. Upon receipt of the title search, the Seller can address any title issues in advance and thus avoid any closing delays.

5. If the aircraft has a registration number on it that the Seller would like to keep, a request to change the tail number can be filed before the aircraft is listed for sale. Depending on how long it takes to sell the aircraft, it is possible that the FAA will issue the 8050-64 prior to the sale, which would allow for a change in tail number prior to closing. Changing the tail number before the sale will allow the Seller to retain control over the preferred registration number and have the tail number available sooner for future use.

6. The Seller can schedule a pre-purchase inspection for the aircraft and oversee the inspection, then sell the aircraft with the inspection already completed. This allows the Seller to control the timing and the scope of the inspection. However, it does mean the Seller pays for the inspection instead of the purchaser. Though this may be a reasonable trade off to maintain control of the process.

7. Building the sales team in advance is also very helpful. The Seller can interview and decide who will broker the aircraft, oversee the inspection and handle the legal work for the transaction. When it is time to list and sell the aircraft, the team will already be in place and ready to move immediately.

On May 15, 2024, the FAA Reauthorization Act of 2024 was passed by Congress and has now been sent to the President for signature. The bill allocates funds in the amount of $105 billion and covers a period of 5 years. The bill itself is over 1,000 pages long but an important read because it will likely impact every American who travels by air. It reauthorizes the FAA, funding, and commercial federal excise tax but also includes work force development programs, fee free family seating, required refunds from airlines to passengers for cancelations and significant delays. It is arguably one of the most comprehensive bills to be passed by Congress in recent years. It is worth exploring everything that the bill contains, but if you don’t want to read all of the 1,000 pages, there are some great summaries available.

If I had to pick the provision I am most excited about, it would be a directive to solve the privacy issues we currently have in private aviation. I believe it is dangerous for people on private aircraft to be publicly tracked and am thankful that we did not wait for a devasting event to occur before action was taken.

Sec. 803. Aircraft Privacy requires the FAA to establish a process where a private aircraft owner or operator may request withholding the registration number and other similar identifiable data or information from the public for noncommercial flights, including preventing the display of certain information on the FAA registry website. In addition, the FAA is required to establish a program for aircraft owners and operators to apply for a new ICAO aircraft identification code. We can only hope that the process is developed in a way without any security gaps.

Below are additional provisions that I am excited about:

Sec. 804. Accountability for Aircraft Registration Numbers requires the FAA to review the process for reserving aircraft registration numbers to ensure equal opportunity for members of the public to obtain specific aircraft registration numbers. Unfortunately, over the years some companies have turned this into a for-profit business and with any luck this will help correct the problem.

Sec. 817. Eliminate Aircraft Registration Backlog requires the FAA to take such actions as may be necessary to reduce and maintain the aircraft registration and recordation backlog at the Civil Aviation Registry so that, on average, applications are processed no later than 10 business days after receipt. I am hopeful that this somehow not only include aircraft registration applications, but also the registration number change requests, which currently take a significant amount of time to process.

Sec. 101. Airport Improvement Program (AIP)/GA Airport Funding authorizes $4 billion a year for the FAA’s airport projects program. This number represents an increase from the current $3.35 billion annual spending level.

Sec. 750. Government Accountability Office (GAO) Study on FBO Fee Transparency directs a GAO study on the efforts of FBOs to meet their commitments to improve the online transparency of prices and fees for all aircraft and enhancing the customer experience for general and business aviation users. While this provision does not go as far as some hoped it would, at least it will start a review that could lead to corrective actions.

Sec. 831. GAO must initiate a review of charitable flights, including a review of all applicable laws, regulations, policies, legal opinions, and guidance pertaining to charitable flights and the operations of such flights including a review of the regulation that prohibits reimbursement for fuel costs for private pilots.

This reauthorization bill is a long time coming and while I am sure each of us would change a few things in the bill, it is amazing to have the reauthorization in place for the next five years. I look forward to the changes that will come from this bill and what will be accomplished in so many important areas.

As an aircraft owner, there may be opportunities to lease your aircraft on an exclusive basis. This can happen with a Part 135 charter company or to an individual or company who needs temporary access to an aircraft, usually because their aircraft is down for extended maintenance, or they are waiting for their own aircraft delivery from a manufacturer. When evaluating the possibility of entering into an exclusive aircraft lease, there are important factors that must be considered and addressed in the perspective lease.

Lessee Without a doubt, the most important aspect for an owner who is entering into an exclusive lease is the identity of the lessee. Extensive due diligence should be performed on the lessee to make sure they have the financial stability to make the payments under the lease and that they have the right aviation team to manage, operate and maintain the aircraft to the in-depth requirements of the aircraft owner.

Territory Since the aircraft is a movable good, it is important to understand which areas of the world where the lessee will be operating the aircraft. Is the area of use going to be restricted to the continental United States or is the lessee going to have the ability to use the aircraft outside of the United States? A larger geographic area of use has greater risk to the aircraft owner, since it may be difficult to locate and/or repossess an aircraft in the event of a default under the lease.

Insurance Prior to entering into an exclusive lease agreement, the agreement should be sent to the insurance provider to make sure they will provide the required coverage, including listing the lessee as an additional insured. The insurance broker may have valuable input regarding the insurance provisions in the lease and therefore a draft of the lease should be provided to the insurance broker early in the negotiations.

Delivery Conditions and Return Conditions Prior to the start of the lease, it is important to determine the condition of the aircraft so there is a benchmark to reference when the aircraft is returned. The Aircraft should be returned in the same condition it was received, but if there is no baseline condition established, the return conditions may be more difficult. A complete list of the return conditions should be included in the lease, along with the details of how and when the lease return inspection will be performed. The lease should include specific details as to (i) who will do the inspection, (ii) who will pay to move the aircraft to the inspection facility, (iii) who will pay for the cost of the inspection and (iv) who will pay to correct any inspection discrepancies. It is also important to stipulate if the inspection will take place during the last month of the lease or after the lease termination.

Duration The duration of the lease will determine how important other aspects of the lease are, including the return conditions. The shorter the lease, the less risk to the owner of the aircraft.

Tax Considerations Consultation with an aviation tax expert prior to entering into the exclusive lease is a must. Income will be generated by the lease of the aircraft and an understanding of how that income will impact the tax planning done for the aircraft when it was acquired is important. The lease should also identify the party responsible for any taxes that may be payable on the lease payments.

Recordation The lease of the aircraft can be recorded with the FAA registry and with the international registry (if the aircraft is of a certain size). A determination as to whether the lease should be recorded will be necessary and often depends on the duration of the lease, the relationship of the parties, and where the aircraft will be operated.

Use Presumably the owner of the aircraft is entering into the lease of the aircraft to generate revenue. The parties will need to determine if the lessee will pay a monthly lease rate, regardless of the number of hours flown, or an hourly lease rate. If a monthly lease rate is selected, the parties will also have to determine if there is a maximum number of flight hours that can occur under the lease before a higher lease rate applies. If the lease rate is hourly, will there be a minimum amount due to the owner during the term of the lease? Also, it is important to determine if there will be any other use restrictions, such as a minimum hour to cycle ratio to prevent additional wear and tear on the aircraft, no smoking on the aircraft, and/or hangarage guidelines away from the home base. In addition, if the owner of the aircraft financed the purchase of the aircraft prior to entering into the lease, the lender may require the owner to obtain the consent of the lender to the lease arrangement.

Cost Allocation The parties will also have to determine who is responsible for costs and the lease should make it clear how and when such payments are made. Property tax, use tax, landing fees, fuel, maintenance, insurance, annual subscriptions, and monthly maintenance program costs are just a few of the costs that need to be allocated between the parties. The lessee must provide its own crew and pay for the crew, however, the cost allocation for some other items may be negotiable.

Inspection and Audit Rights The owner of the aircraft needs to have the right to audit and inspect the aircraft to make sure the aircraft is being maintained in an acceptable manner. This should not just be a provision in the lease, but an item that the owner of the aircraft actually exercises. How often and the scope of the inspection and audit will depend on two main factors: duration of the lease and the relationship between the parties. Another tool that the owner of the aircraft can use is to require the lessee to provide read-only access to the maintenance records. The pedigree of the aircraft can be dramatically impacted if the aircraft is not maintained, or the records are not accurate. As a part of the audit process, the aircraft owner should periodically have a title search run at the FAA to ensure that no unpermitted liens are placed against the aircraft during the lease.

While allowing an aircraft to be used on an exclusive basis by another party can generate revenue for the aircraft owner, there are risks that should be considered before relinquishing control of the aircraft. A thorough and thoughtful exclusive lease agreement should address all relevant factors to protect the aircraft owner and the aircraft.

Over the past 12 months I have had a significant increase in calls with jet card holders, membership program participants and fractional owners who have received the upsetting news that their paid and contracted private aviation provider is unable to provide services. Recently we have seen Jet It, AeroVanti, and Set Jet cease operations along with George Jet pausing operations. Moreover, I am aware of additional aviation service providers who have not officially ceased operations but are currently not fulfilling their contractual requirements and are not providing any private aviation services.

Not only do the card holders, members and fractional owners suffer service disruptions and financial losses when these programs fail, but the private aviation industry suffers reputational damage. Support service companies such as fuel providers, maintenance repair centers and catering companies are often left unpaid by the failed programs. I have also seen cases where the charter operators who provide supplemental support for the failed programs are left unpaid.

Unfortunately, it can be very difficult to determine the financial wherewithal of a private company that is not subject to public disclosure requirements. As a result, some professionals in the industry have started to request additional financial information, even from privately held companies, prior to entering into an agreement with the aviation service provider. Until there is more financial transparency, there are still a few things that can be done to protect against loss:

1. Prepayment If prepayment for future flights is part of the provider’s business model, is the provider willing to segregate the prepayment amount into a separate account in the name of the customer?
2. Aircraft Are the aircraft in the program owned by the company, leased, or chartered on demand? If owned, title searches can be done at a cost of a little over $100, so you can see if any support service providers have filed liens for lack of payment. If aircraft are leased, will the service provider issue letters from the aircraft owners affirming that lease payments are being made in a timely manner.   If the program uses on demand charter, can the service provider supply a list of who their main charter suppliers are and a recent letter indicating that the charter operator is paid on time for the services it provides.
3. Restrictions Is the program set up to guarantee performance everyday of the year? If so, is that business model sustainable based on the number of customers and size of the guaranteed service area? Said another way, is the program providing guaranteed access to aircraft all over the country on a fleet too small to support such a venture?
4. Variable Costs Is the program set up so that variable costs such as fuel and insurance are passed onto the customer or is the program set up to be all inclusive, regardless of variable costs? If the program is all-inclusive, is that sustainable?
5. Leadership and Longevity Who are the leaders of the company? What is their understanding of private aviation and what is their reputation in the industry? How long has the company been in business? How long has the current leadership been in place? Is the company profitable?
6. Service Contracts For the aircraft being operated by the service provider, are there maintenance programs on the engines, APU, airframe etc. and if so, can the program provider furnish a letter that such programs are current and in good standing?
7. Financial Backing Who is providing financial support to the company and will that provider give a letter confirming any recently published financial support announcements? We have seen instances where providers have claimed to have lined up additional financing only to then learn the financing was never approved and distributed.  Another question to ask is, if the provider owns all of the aircraft and new aircraft are on order, where is the capital coming from to make the payments necessary for the new aircraft orders?
8. Lawsuits Is there any history of or pending litigation between the provider and the provider’s customers or suppliers? If so, those lawsuits may provide valuable information in selecting a provider and the court filings are public information. Will the provider represent that there is no pending litigation with customers or suppliers?
9. Product Selection Does the aircraft type offered make sense? Is the aircraft type selected built to fly the number of hours that the program provider plans to use them for? How often will the aircraft selected have to be down for major inspections and how often do those major inspections occur. Have the operating costs been properly calculated based on the planned utilization of the aircraft? Is there enough infrastructure available for the maintenance that will be needed on the aircraft?
10. Margin Does the offer seem too good to be true? Is it hard to understand how the service provider will make any money? Is the offer significantly lower than any other provider? All of these are red flags that should not be ignored.

Before sending a significant amount of money to any service provider, I recommend considering the ten items above. If you can’t get comfortable with these ten items, then perhaps a different program should be considered. If you do not have time to investigate the offer, then call a consultant or an aviation attorney and have them do the investigation for you. Recently, a client called me on a collections case for a charter broker who had not paid the charter operator. As soon as the client said the name, I knew we were in trouble. I think we will see more programs fail in 2024. Business models that were created at a peak of an aviation business cycle (such as during Covid), often do not have enough margin built into them to survive when we are not at a peak. With a bit of diligence on the part of consumers, failing companies (or those likely to fail) can be avoided.

 

When I began my career in the aviation industry 25 years ago, the “life cycle” of private aviation consumers was straightforward and predictable. They sampled private aircraft travel by chartering, moved into fractional ownership and then, eventually, whole aircraft ownership. Later in the life cycle, when the consumer’s travel decreased, they moved back into fractional ownership and eventually returned full circle to charter. Typically, a consumer would rely on a single provider until that provider could no longer satisfy their requirements.

For a variety of reasons, including the recent pandemic, this conventional life cycle of the private aviation consumer has drastically changed. There has been a revolution in private aviation options and platforms, creating many new alternatives that did not previously exist. This has led to a decrease in brand loyalty by private aviation users. Also, many first-time aircraft buyers have not flown privately for an extended period and move right into whole aircraft ownership. Many private aviation consumers have become much savvier and use a combination of multiple aviation solutions to fulfill their various travel needs.

WHY IS THIS IMPORTANT?

When a private aviation consumer finds herself in any one or more of the following scenarios: considering private aviation for the first time, looking for an alternative option to a current service provider, contemplating whole aircraft ownership, or resolving dissatisfaction with a current service provider, there is no standard answer as to what program or option(s) would be best. There are many factors to consider when selecting one or more private aviation products and the consumer does not often have the time to fully explore the multitude of available options. Here are some key considerations to keep in mind:

1. Number of hours flown per year

2. Destinations

3. Importance placed on the age of the aircraft

4. Length of flight segments

5. Ratio of roundtrip vs. one-way travel

6. Number of passengers

7. Peak time traveler or business week traveler

8. Acceptable service level (i.e. on time performance, working entertainment systems, interior condition and amenities)

9. Amount of time available to manage private travel solutions

10. Financial stability of service providers being considered

Given the complexities of the offerings in today’s aviation market and the limited research time available to most consumers, it is often advisable to hire a consultant who is well connected in the industry. The consultant can help the consumer consider the key factors mentioned above, explore the various options and propose the solutions that make the most sense for the customer’s travel profile, needs and wants. When selecting the consultant, it is important to confirm that they do not receive any referral fees or other types of compensation by recommending one program over another. The consumer must be sure the consultant is making their recommendation based solely upon their best interests.

It seems that almost monthly there is a new aviation program or offering that I am hearing about for the first time or a new permutation on an old program. It is sometimes exhausting to keep up with all the changes that are occurring in the marketplace. However, even if you read all the marketing literature, you can’t truly understand a program, the “enhancements” it offers and the performance of the service provided unless you place multiple users into a specific program and evaluate its success. That is why an experienced consultant can bring tremendous value to a consumer evaluating private aviation solutions. As I always remind my private aviation clients, please don’t simply select the program that your friend uses unless your friend has the exact same travel needs and service level expectations. If you do, you may be setting yourself up for a costly disappointment.

There is no longer a typical life cycle pattern for the consumer of private aviation. Take the time to evaluate all the options available (with the help of a trusted consultant) and chart your own path based on the solutions that best suit your unique travel needs.

Since March of 2020, and the onset of the pandemic, our industry has been extraordinarily busy. For the past three-and-a-half years those of us with careers in private aviation have worked tremendously hard fulfilling the needs of our clients. I recall thinking in December 2020 how I was going to get through the month due to the volume of transactions with end of year close dates. I was not alone. During that time, every aircraft lender, broker, and escrow agent I was working with felt overwhelmed.

Now, fourteen quarters later, the pressures we faced in December 2020 are the new norm. Another 4th quarter has come around and we will all, again, be extremely busy. Yet it does not seem as overwhelming this time around because it has become our new normal. Additionally, I have changed my mindset, and instead of having the 4th quarter blues, I am embracing this year and focusing on how lucky I am to work in private aviation.

This mindset change has been slow in coming. However, as I laid awake at 3:00 AM on November 13 thinking of all of the items I needed to accomplish the next day, my mind wandered to the amazing experience I had the week before at Corporate Jet Investor in Miami. At CJI, 450 people gathered to learn from industry experts who shared their wisdom. The conference attendees could interact informally, and it was in those moments, that I started to reflect how amazing my journey in private aviation has been.

Simply put, I love what I do. Working with clients to give them comfort to execute their plans in private aviation brings me tremendous joy. Further, to work in an environment with so many people that I consider not only colleagues, but true friends is an honor and privilege. Having spent 25 years in the industry, I am fortunate that when I attend events like CJI, NBAA, and NAFA to name a few, I am able to reunite with many of these friends.

So, while I joke (but not really) that I will be in my office non-stop until December 29, 2023, this year I am doing it with a smile on my face. I know that 4th quarter does not last forever and that the boom we have seen over the past few years may also not last forever. But, most importantly, I know that there is no work I would rather be doing. I still love guiding my clients to the right private aviation solution for them. I enjoy writing contracts for the newest idea in private aviation and I honestly am thrilled every time a transaction closes.

As we approach Thanksgiving, I am incredibly thankful to have made a career in private aviation and made so many friends along the way. Thank you to each of you who have trusted me as your attorney, worked on a transaction with me, or sent me referrals over the years. I am truly grateful for the work and the friendships.