As we enter the 4th quarter, I am reminded that the industry (lenders, escrow agents, brokers, insurance agents, trust companies and attorneys) will once again be working to close as many aircraft purchases and sales as possible before the end of the year. As we sprint to the finish of 2023, it is important to remember that some steps take time and should not be skipped.
Visual inspection Although the photographs and video tours of aircraft are of a better quality than they ever have been before, there is no replacement for entering an aircraft, sitting in the seat of an aircraft or standing in the cabin. If the principal owner is unable to participate in the visual inspection, having a representative physically view the aircraft and confirm the photographs and videos are an accurate depiction of the actual condition of the aircraft is valuable.
Ownership and Operating Structure; Tax Planning Even before the specific aircraft is found, the ownership and operating structure, including developing a tax plan can be completed. Then, once the aircraft is sourced, the plan can simply be implemented. There is no reason to wait on this if a 2023 acquisition is planned. I recommend this be started immediately.
Confirmation of Maintenance Program Status Prior to closing, the parties should independently confirm that the maintenance programs are in good standing and paid through the closing date. There can be a significant delay in assigning the maintenance programs if there is an unpaid balance at the time of the sale or a discrepancy in the final reported hours.
Lender Document Review Most aircraft loans take around 30 days from start to finish. As a result, if the plan is to finance the aircraft at the time of closing it is important to provide all the documentation the lender requires as far in advance as possible. Most of the lender’s required documents must be completed before closing, including an acceptable certificate of insurance. Plan enough time to get all relevant documents in order prior to year-end. Alternatively, consider paying cash and arranging financing after closing.
Title Searches Title searches should be done when the purchase agreement is signed so that if there are any liens on the aircraft the releases can be drafted and signed well in advance of closing. If the seller has a lender, then a payoff letter from the current lender will also be needed. The timing of obtaining the payoff letter is something that should be coordinated with the lender, escrow agent and seller. The payoff letter is not something that needs to be done at the last minute.
Know Your Customer Requirements With the current sanctions, it is important to avoid entering into a contract with any party who is on a sanctions list or if the transaction would otherwise be prohibited by law based on, among other items, the source of funds. Performing due diligence on the parties at the start of the transaction will avoid any pitfalls when the deal is scheduled to close.
Pre-Purchase Inspection and Correction of Discrepancies Inspection slots are already becoming scarce. It is important to determine the scope of the inspection, location of the inspection and duration of the inspection immediately upon the execution of the letter of intent, if not before.
Management Company Selection This is another item that does not have to wait until the aircraft is located for purchase. You can evaluate the various management companies in advance so that once an aircraft is found you already have a company selected. It may also be possible to have even negotiated the management agreement prior to closing.
Crew Sourcing The pilot shortage continues and is real. Sourcing permanent crew for an aircraft is something that should be started as early as possible. Many management companies will start the search process as soon as the letter of intent to manage is signed.
Insurance If a management company is not providing the insurance for the aircraft, then you can obtain insurance proposals from an insurance broker as soon as the letter of intent is signed. There is no reason to wait and having the cost of insurance early in the process will help with budgeting.
Cross-Border Transactions If the transaction is a cross-border transaction, make sure all parties are clear regarding the legal requirements of each applicable country and realistic about the amount of time the import/export process will take.
While buying and selling an aircraft involves many moving parts, those parts move even faster when the 4th quarter crunch is in effect. When support service providers are busy, checklists and a team leader become imperative. There must be one person leading the team who is checking to make sure all aspects of the transaction are completed prior closing (i.e., assignment of maintenance programs, insurance, funds, lender agreements, management agreements, international registry account set up, etc.).
My last bit of advice concerns setting the closing date. The last business day of 2023 is Friday, December 29th. In the past, the FAA registry has closed early on or in advance of holidays and sometimes due to inclement weather. It is recommended that 2023 closings be completed no later than December 27, 2023, in order to allow time for the aircraft to be placed into service before year end and avoid any unexpected closing delays that could occur.