Ways to Make Cross-border Jet Transactions Easier

Cross-border transactions of business jets are a common occurrence, though they can pose considerable logistical, financial and legal headaches. What tips do the experts offer to make such deals go as smoothly as possible?

International deals are a natural part of the business jet market, according to Scott Boylan, Founder and CEO of Aircraft Partner 4U, a Germany-based specialist that provides a range of broker services. This is down to the nature of the asset, which is of course movable.

“It’s like having a house that you can move around the world,” Boylan says. However, each cross-border transaction presents unique challenges and opportunities. Some regions have similar regimes and approaches – for example, between the US and the EASA countries – which can make transactions simpler.

Why Use a Broker AND Escrow Service?

Boylan points to several important rules of thumb, with the number one priority being the need to contact a brokerage expert who can guide the intended transaction. Second, it is vital to employ an escrow service, such as one of the many companies based in Oklahoma City.

“A lot of people avoid this, and it drives me crazy,” Boylan reveals. “Escrow services really protect the money and the transaction – they’re like a firewall.” Escrow services are vital for cross-border transactions in numerous ways, Boylan adds.

They can ensure a transaction occurs in a standardized way, conducting background checks as necessary. And they can do title searches on the US Registry and the International Registry, particularly when it comes to transactions involving larger aircraft, “making sure there are no liens against an engine, or component, or airframe, for example.”

Of course, escrow services can also oversee the funds associated with a deal, as well as preparing agreements appropriate for particular transactions – including the terms regarding where the aircraft is being delivered, the deposit, pre-purchase inspections, and more.

According to Brad Harris, President and CEO of Dallas Jet International, a US-based company specializing in buying and selling business aircraft in the international marketplace, an imported airplane must be deregistered from its prior registration before the deal closes. If the buyer then fails to close the deal, the seller “will be in a bad spot trying to get it re-registered back where it came from originally.”

Therefore, Harris argues, there needs to be an ‘irrevocable letter’ to the escrow company ensuring that once de-registration occurs, “the money is already in escrow, and the airplane is in a condition to be imported.”

“Escrows make sure that everything is done correctly and executed according to the agreement. If not, they stop the transaction until the situation is resolved,” Boylan emphasizes. “It really protects the intent of the transaction.”

Modifications and Maintenance Can Have an Impact

Importing aircraft into the US can be a highly complex process, says Harris. Typically, a transaction will require a US attorney and a counterpart from the country in question.

Additionally, depending on the country of origin of the aircraft, certain items of equipment – a radar system, for instance – may not be validated for use in the US, which could mean the buyer has to engage a Designated Engineering Representative (DER) to review and certify the install.

It may even mean the buyer has to uninstall the piece of equipment and install a similar system that is on a US supplemental type certificate (STC). “So, if you buy an airplane that has several modifications, it can be very costly,” Harris highlights.

Harris says operators “should be very particular about looking at the equipment on the aircraft and where the aircraft has been maintained” – for example, whether in an OEM-approved service center, or in a private hangar. It’s important to establish “the history of the airplane, including where it’s lived, because some environments are corrosive in nature. You must take that into account,” Harris continues.

Beyond this, it is vital to assemble the correct team with the right legal knowledge to ensure the transaction proceeds smoothly. Harris says his company prioritizes working with people “who are very good at determining [the details] of an aircraft from an equipment standpoint, from a history standpoint and from an operational standpoint… you just have to be very particular about what type of airplane you import and how you import or export it.”

Prepare for Additional Costs and Time

Adam Meredith, President of AOPA Aviation Finance Company, reports a recent increase in US customers searching beyond the country’s borders to find an aircraft, which he says “certainly increases the complexity of the transactions.

“There are frequently better values out there, but there’s going to be additional costs, and certainly additional work involved in making the transaction happen.”

The funding process can be particularly tricky for buyers if they are using financing, Meredith said. Lenders will frequently want to ensure the aircraft is in airworthy condition – and physically situated in the US – before they are able to release funds to the seller. This may mean the buyer has to arrange the transaction in cash, before refinancing through a loan.

This can be further complicated if the seller has financing of their own to deal with. “The biggest piece of advice is to have a discussion to understand what the lenders on both sides will or will not accept,” he suggests.

For example, the seller’s finance provider may not send a signed lien release to escrow until all funds have been received. A buyer would therefore have to send money to the seller before being assured of their actual ownership, which many domestic US lenders will not allow.

Conversely, domestic transactions going through escrow will generally ensure they are in receipt of a properly executed lien release and complete funds, before simultaneously releasing funds to the seller and filing the buyer’s interest with the FAA, ensuring both parties are properly represented.

However, there can often be negotiated solutions in cross-border transactions. “The process can take more time when it comes to understanding what the financial institutions are comfortable with, both as a buyer and a seller.”

One of the key considerations, then, is to be creative in arranging financing, Meredith suggests. More fundamentally, he advises anyone considering a cross-border transaction to build in a significant amount of time for the deal.

“If you’re normally looking at a month for a transaction, double it, just because of the additional work that’s going to be involved in the process,” he concludes.

More information from:

Aircraft Partner 4U: aircraftpartner.de
AOPA Finance: finance.aopa.org
Dallas Jet International: dallasjet.com