Having previously focused on the Boardroom process and choice- Jay Mesinger addresses hidden pitfalls that can change the outcome of an aircraft transaction from one with a successful closing to one full of frustration- or possibly not happening at all.
Buying and selling any high-dollar asset is complex. As an aircraft broker- one of our roles is to help navigate the execution portion of the transaction to a successful closing. This process entails much more than just managing expectations; it involves strategic shielding to keep a transaction moving forward without disruption.
I have said for years- “If aircraft brokerage was easy- everybody would be doing it.” It takes years to have experienced all of the areas that can possibly derail a perfectly thought-out transaction. Consider the following hypothetical transaction as I break it into its constituent parts and then piece it back together into a successful whole:
A sloppy Letter of Intent (LOI) and contract terms will lead to a loose and unreliable outcome: Good aviation legal counsel is a must from the very inception of the LOI. Some brokers tasked with creating the LOI turn to aviation counsel to develop the contract as a hindsight once the LOI has already been agreed upon.
Very often due to the lack of detailed legal verbiage in the accepted LOI- the seller may view the written contract that now contains more comprehensive language to be a new deal- thus heightening tensions can creep into the process and create stress that could have been avoided.
International transactions provide many unique challenges and pitfalls compared to domestic transactions: As you seek to purchase an aircraft from a country other than your own- it is important to know if that country is a signatory to the Geneva Convention. If it is not- parties to the sale may not necessarily be following the same guidelines for disclosing aircraft ownership.
Another significant piece of information is whether the exporting country has a recordation repository that tracks and reports on liens and encumbrances for the aircraft you are purchasing. Many countries record operator information but not ownership data. Finding the real ownership entity and understanding the correct entity to contract can be painstaking. Many hours and dollars can be consumed before learning that clear title cannot be validated.
Meaningful representation and warranties to the title will be worthless for future claims if the seller is an LLC or SPV: Whether the transaction is domestic or international- be sure the contract is with the ultimate owner. At least have guarantees that extend beyond the LLC or SPV. Furthermore- be sure that the contract is actually between parties that have the fiduciary responsibility to be engaged in that contract.
‘Back-to-back’ transactions that put the purchaser in a contract with someone who is not the owner of the aircraft but who has a separate contract with the seller- can leave the purchaser without any real access to the actual seller.
This situation can cause serious problems with fulfillment of delivery conditions as well as the ability to deliver title to the aircraft- which can mask transparency and insulate actual financial tracking. On the unlikely reasoning that the seller wants this type of insulation- the purchaser must have some legal path to the ultimate seller and legal owner of the aircraft.
Deposits paid and final purchase-price balance must be made only to a title company that is impartial- and which can clearly identify itself and be a party to the purchase contract.
Next to a good contract- the pre-purchase inspection is probably the most critical piece of the transaction process: This holds true whether the airplane is being sold domestically or internationally. Pre-owned aircraft do not come with a warranty that survives closing. Once purchased- the aircraft will be “as is- where is'- (translate: no take-backs).
It is imperative to choose a pre-purchase facility that is factory authorized and has great knowledge of the aircraft it is being asked to inspect. This inspection is an investment made by the purchaser- and is therefore not something to short-change. Insist upon an inspection that follows manufacturers’ guidelines and includes corrective actions that follow manufacturer maintenance manual guidelines.
Poor oversight on the technical side of the transaction will lead to disappointment and frustration with respect to the safety as well as the mechanical status of the aircraft that is ultimately purchased.
It is incumbent on the purchaser to verify the specifications that are used to describe the aircraft: Frequently- specifications provided by the seller are inaccurate and incomplete. There becomes- however- a reliance on these specifications as they find their way into the purchase contract.
One of the first items on a pre-purchase inspection that we direct for buyers is to task the inspecting company to inventory and audit the specification sheet compared to the aircraft itself. If variances occur- they should be discussed sooner rather than later in the process- before larger amounts of time and money are expended by either side.
Let us conclude that all of the above frustrations need not occur in your transaction if you treat it with the respect it commands. There is no replacement for a team of professionals to help guide buyers and sellers through the complex process of aircraft transactions. Legal- brokering and consulting partnerships are vital to a successful outcome.