Amanda Applegate

Inventory for many aircraft type, especially those of newer vintage, is significantly lower than it has been in over a decade. Additionally, transaction volume has increased. As a result, as attractive and popular aircraft are listed for sale, sellers are receiving multiple offers almost immediately. We are very much in a Seller’s market. Many buyers are looking for aircraft and becoming increasingly frustrated that their desired aircraft is not available for sale and/or that when an aircraft is listed for sale that there are multiple competing offers. In today’s seller’s market, buyers and their representatives must avoid the race to the bottom and understand that the aircraft purchase process takes time. For example, establishing the ownership and operating structure for the aircraft takes time and the due diligence necessary on the aircraft prior to closing, such as the pre-purchase inspection and repair of discrepancies, takes time. Buyers must avoid skipping the necessary steps when acquiring an aircraft.

It is important to note that the establishment of the aircraft ownership and operating structure can be completed before the aircraft is sourced. Buyers who want to acquire an aircraft in 2021 should be putting the aircraft ownership and operating structure plan together with their aviation attorney and tax advisors now, so that when the aircraft is found there is no additional planning needed. An attempt to purchase an aircraft immediately and complete the ownership and operating structure plan after closing will not work and may trigger unnecessary taxes and regulatory compliance issues.

Similarly, if lender financing is planned for the aircraft acquisition, a lender should be selected and the financial information the lender will require should be gathered and submitted, so that all documents are already with the lender when the aircraft is selected. This will help the buyer avoid having to pay cash at closing and financing the purchase at a later date.

Additionally, if the buyer desires to engage a management company to manage the aircraft, various management companies can be vetted and a selection made prior to selecting the aircraft to be purchased. The management agreement can also be negotiated in advance of finding the aircraft, so that the parties can simply add the relevant and aircraft specific information to complete the management agreement once the aircraft is identified.

Furthermore, and most importantly, the due diligence on the aircraft being acquired should not be skipped. Preowned aircraft sales are on an “as, is, where, as” basis. As a result, in almost all cases it is not possible (except in the case of fraud) to go back to the seller after closing to remedy items found to be wrong with the aircraft. A pre-purchase inspection of the aircraft is necessary and while many sellers are limiting the scope of the inspections, buyers should seriously evaluate the scope and limitations of the inspection being made by the seller, as some items found after closing can render the aircraft inoperable for many months while repairs are done and parts are sourced. Moreover, in addition to the downtime, there can be significant costs associated with major repair work on aircraft.

In today’s headlines we are all reading about similar shortages in the housing market or perhaps experiencing it first hand while trying to buy or sell a house. We are also hearing stories of home buyers who did not inspect or even see a house prior to the acquisition of the house. As tempting as this path may be for a buyer eager to purchase an aircraft, this must be avoided in the used aircraft market. Buyers should not give up doing the necessary inspections on the aircraft to confirm the aircraft is airworthy, is in the condition as represented by seller, and meets the needs of the buyer. I say all this as a reminder that eventually the buyer will be a seller and when that time comes, it may not be a seller’s market.

In all types of transactions, you run into the phrase “time kills deals” and I actually believe that can be the case with aircraft purchases, especially when there is limited inventory, such as we are facing in certain aircraft categories in 2021. When it takes weeks to draft an initial purchase agreement or return comments on a purchase agreement, those avoidable delays can impact the success of an aircraft purchase. But lately I have encountered what I consider to be artificial deadlines that put unnecessary pressures on aspects of the Aircraft purchase process.

In a typical aircraft purchase transaction, after the purchase agreement is executed by the parties, the Aircraft is moved to an inspection facility and undergoes a pre-purchase inspection, the scope of which the parties have usually already agreed upon. However, neither party really knows with absolute certainty how long the inspection is going to take nor what is going to be found during the inspection and thereafter, how long the correction of discrepancies will take. Recently, during purchase agreement negotiations, I was asked to state that the inspection would not take longer than 7 days. As long as the parties agree on the scope of the inspection prior to the start of the inspection, I don’t understand or accept why the purchaser would or could possibly commit to the amount of time the inspection will take. While there is an estimated number of days from the inspection facility but the purchaser does not control the schedule of the inspection facility or its workers.

Additionally, I have been asked to establish a hard closing date by which time the transaction must close. Depending on the date selected, this can be reasonable as the parties don’t want to be committed to a transaction for numerous months, but again it must be done in a way that the purchaser is not obligated to commit to a process and timeline that is outside of their control. Neither the purchaser nor the seller know at the time the purchase agreement is executed what discrepancies will be found or how long it will take to repair the discrepancies in order to return the aircraft to service. If there is a hard closing date established by the parties that can’t be achieved once the process has started (through no fault of either party), then either the agreement will terminate or the parties will have to agree to amend the purchase agreement.

Finally, more and more frequently, I have been seeing many purchasers enter into an agreement to purchase an aircraft and start planning to use the aircraft for a specific flight planned in the future. This creates an unnecessary stress on the aircraft purchase process. Because of this self-imposed deadline, the purchaser may be willing to accept the aircraft and take delivery of it before all of the inspections that should be done to confirm the condition of the aircraft are completed or elect not to have all of the discrepancies fixed prior to close (if they are not airworthiness items).  While such decision may be satisfying in the short term in order to be able to use the new aircraft for the planned flight, the costs associated with such decision to close early, could end up being substantial.

Generally speaking, it is important that both parties are committed to closing the transaction as quickly as possible. However, forcing specific dates into an uncertain process simply adds unnecessary stress, possible defaults and pressure to accept an aircraft in a condition that is less than required by the purchase agreement. At the start of the process the parties, particularly the purchaser, should understand that there are variables in the process which cannot be predicted. The purchase timeline is fluid and an unwillingness to allow the process