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The ’How to Buy, Sell & Upgrade Aircraft’ AvBuyer Guides
Written by industry experts to help you make the right decision when selling, buying or upgrading your aircraft.
How to Sell a Business or Private Aircraft: by Brian Heisman
Selling a pre-owned business aircraft should be simple and straightforward; all you need to do is advertise your aircraft for sale, negotiate a price, allow the aircraft to be inspected, and then get your cash at closing. Why then has the private jet and business aviation brokerage industry in the US and elsewhere flourished to handle such a simple set of tasks? The answer is that selling a used business aircraft is a difficult process and one that requires a knowledgeable broker who will represent the seller’s interests and create an arms length setting for the negotiation, whether you are selling a pre-owned Cessna Citation, a used Gulfstream, Learjet, Falcon, or any other pre-owned private jet. “For sale by owner” is usually an invitation for prospective buyers to put in low bids, hoping to get a deal.
"selling a used business aircraft is a difficult process and one that requires a knowledgeable broker"
When selling a used corporate aircraft or private jet, the broker will obtain professional photographs, prepare a specification sheet, and list the aircraft for sale on various websites and in trade magazines. The aircraft broker will screen potential buyers, and create a competitive bidding atmosphere. The broker should assess the buyer’s interest in the transaction and financial wherewithal to complete the transaction. The broker should be present at a visual inspection, and determine whether to allow, and be present at, a test flight.
Upon identifying a qualified aircraft buyer, the seller’s counsel (not the broker) should prepare a letter of intent which will identify key aspects of the business aircraft for sale transaction, including most importantly price, deposit amount, and whether the buyer is obligated to accept the aircraft at the completion of the inspection (subject to the seller correcting airworthiness discrepancies). A well drafted LOI will be free of contradictory or vague terms and will not omit important items.
Upon execution of the LOI, the business aircraft buyer should have an opportunity to visually inspect the aircraft at the seller’s home base, or possibly at the buyer’s location. If the aircraft for sale is moved to the buyer’s location, the buyer should pay the out-of-pocket expenses to move the aircraft. Upon completion of the visual inspection, the parties should negotiate a definitive purchase agreement, normally prepared by buyer’s counsel, and ideally executed prior to commencement of a pre-purchase inspection.
The seller of the aircraft usually pays the cost of any corrective work to place the aircraft in an airworthy condition. The buyer usually pays for the cost of the inspection itself. During the conduct of the pre-purchase inspection, it is advisable for the seller’s broker to be present to represent the seller’s interests, as many items that may be listed by an inspection facility on the inspection report are not airworthy items, and can be deleted from the list.
Ideally, the aircraft buyer will be obligated to proceed with closing provided that the seller repairs all airworthy items. It is less advantageous from the seller’s perspective for the buyer to have the right to unilaterally reject the aircraft for any reason at the completion of the inspection. As a practical matter, since the buyer and the seller are both incurring costs during the conduct of the inspection, normally the deal will continue forward; however, in a declining market as we have today, an aircraft buyer may be economically compelled to buy another aircraft, and therefore the seller should lock up the buyer with an obligation to proceed to closing.
The deposit amount is also an important component of the aircraft buyer’s obligation to proceed to closing. If the deposit is too small, and market values are declining, then the buyer may be incented to default and forfeit the deposit, rather than proceed with the transaction. This dynamic has occurred since the United States and other countries have fallen into recession. A foreign purchaser may also default because a strengthening dollar may cause the purchase price of the aircraft, which is typically denominated in U.S. dollars, to have risen.
In order to claim the deposit from an escrow company, it is also important for the purchase agreement to designate the deposit as not only non-refundable to the buyer, but also the “property of the seller.” The use of the words “property of seller” conveys an entitlement by the seller of the used aircraft to the deposit proceeds then being held by the escrow agent. Without these words, it is likely that an escrow agent would require confirmation by the buyer of the used aircraft to release the deposit to the seller, providing an unwanted opportunity for negotiation.
A closing of the transaction may occur through a telephone conference call with all parties involved in the selling or business aircraft or private jets represented and the documents pre-positioned in escrow. To avoid delays in the closing, it is important to identify lead time items, such as registration by both the aircraft buyer entity and the aircraft selling entity with the international registry, and the wiring of purchase proceeds early enough in the day to enable a closing at the designated time later that day. It is customary for an aircraft seller to receive a fed tracking number confirming the wire transfer of the sale proceeds prior to authorizing release of its Bill of Sale.
During the entire sale process, good coordination between and among the aircraft seller, its counsel and its broker, will have allowed for a transaction with minimal problems and achievable expectations.
By Keith Swirsky and Brian Heisman of GKG Law
Keith Swirsky is President and Chairman of the Aviation Group and Tax Group. Partner concentrating in the area of business aircraft transactions, tax and business (transactional) representation with emphasis on federal and state taxation and federal regulation of aircraft ownership and operations, structuring and negotiating mergers, acquisitions and reorganizations, tax-free exchanges, and tax and corporate planning for the creation of aircraft operating structures.
Brian Heisman is an Associate of GKG Law concentrating in the area of business aircraft transactions, tax and business (transactional) representation, with emphasis on federal and state taxation and federal regulation of aircraft ownership and operations, structuring and negotiating mergers, acquisitions and reorganizations, tax-free exchanges, and tax and corporate planning for the creation of aircraft operating structures.
For more information please see: www.aviationtaxlawyer.com