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BUSINESS AVIATION & THE BOARDROOM - Thoughts for the European Business Leader (Part III)

After completing negotiations for an aircraft to be acquired attention is placed on closing the transaction, Jim Cooling explains. A closing date for completion of the acquisition will be established after the purchaser has finished the pre-purchase inspection and all discrepancies are corrected by Seller.

AvBuyer   |   25th January 2011
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Thoughts for the European Business Leader (Part III):
Closing The Aircraft Transaction with a US Seller
After completing negotiations for an aircraft to be acquired attention is placed on closing the transaction, Jim Cooling explains. A closing date for completion of the acquisition will be established after the purchaser has finished the pre-purchase inspection and all discrepancies are corrected by Seller.

In the US, the purchaser must consider the state in which the aircraft will be delivered. Each state has its own law relating to sales tax, or use tax. Some states are considered tax free and tax friendly for aircraft closings, but the choice of location is not simple. The timing of the delivery may also be important with respect to income tax laws (e.g. in the case of a “1031 exchange” or other acquisition that may be related to the sale of another aircraft).

The purchaser will want to make advance arrangements for aircraft insurance, both as to the aircraft itself (known as hull insurance) and as to liability insurance coverage. This insurance should be in place before the purchaser accepts delivery. If financing is involved, this aspect of insurance will be coordinated with the lender, who will also impose certain insurance requirements through the loan or lease documents. The purchaser should have in hand a satisfactory certificate of insurance guaranteeing coverage prior to the closing.

The Closing is the event at which the final portion of the purchase price is paid, and the aircraft is delivered. Normally in the US, closing will be coordinated with a title company in Oklahoma City, Oklahoma - the location of the FAA Records Center - where recordation of the acquisition documents takes place simultaneously with the Closing.

The title company (as escrow agent) collects all the signed documents and funds, and conducts the FAA filings. It then distributes the final documentation among the parties.

For a US registered aircraft which will maintain its US registration after purchase, perhaps through an owner trust, the FAA will require a series of documents. This includes the trust agreement; an acknowledgement of US citizenship by the owner-trustee; the FAA or Warranty Bill of Sale; the Aircraft Registration Application in the name of the owner-trustee; the FAA Form 8050-135 for registration of the interest on the International Registry; any mortgage or security agreement of the Lender; and any lien releases from Seller to provide clear title to the aircraft.

For a US aircraft that will be changing to a registration in another country, an additional series of documents will be required. In addition to those mentioned above, this includes lien releases from the Seller providing clear title to aircraft.

Further, the purchase must have evidence satisfactory to the FAA that each holder of a recorded right has been satisfied or consented to the transfer; a written request for cancellation of Certificate of Aircraft Registration; written certification that all registered interests with priority have been discharged or have consented to cancellation of the Certificate of Aircraft Registration; and an approved form of notification to the country of export by the FAA.

If the aircraft is delivered in the US and is to be flown out of the US immediately afterward, the purchaser must arrange in advance for the needs of that particular flight and each intermediate point of landing.

US customs regulations require that a US aircraft sold in the US for registration or basing overseas, must be formally exported from the US when it leaves the country. Seller and Purchaser will need to cooperate to affect the customs export which requires the filing of a Shipper’s Export Declaration with Customs and Border Protection (most often performed by an established customs broker).

Any aircraft transaction involving an aircraft registered in the US will require FAA registration. Further, the transaction should be registered with the Cape Town International Registry. There are currently 28 countries, including the US, which are signatories to the Cape Town Convention on International Interests in a Mobile Equipment and the Protocol on Aircraft Objects.

Even though neither the EU nor most of its member states* are at present signatories to the Cape Town Convention, a seller of a US aircraft will likely want to register the contract of sale on the International Registry.

To fully perfect title in signatory countries, a qualifying aircraft (weight, engine thrust) must have its contract of sale registered. To register the interest, both Purchaser and Seller must apply to become Transactional User Entities and appoint a Professional User Entity (usually an escrow agent) to register the interest.

Lenders in countries that are signatories will also want to register their international interest on the registry and will require the contract of sale to be registered.

The acquisition of a business jet aircraft may seem complex to the European business leader, but with careful planning the process is manageable and the satisfaction of owning and operating a business jet worldwide is readily achievable.

Whether the business jet aircraft is purchased from a US seller or otherwise, the European business leader would be best served by the assistance of an experienced aviation broker, and aviation legal counsel specializing in international aviation transactions.

* Ireland, Netherlands and Luxembourg are signatories to the Cape Town Convention at this time.

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