George Dom reviews the basics for Board Members and those who offer advice in acquiring a suitable pre-owned business jet.
Selecting the right aircraft, at the right price, with the right terms, and avoiding unpleasant surprises is a complex project that requires discipline, focus and persistent attention-to-detail. A successful acquisition is a team-effort requiring expertise in operations, market research and analysis, legal, tax, insurance, finance and project management. Unfortunately, aircraft buyers routinely make one or more of the following ten mistakes: 1.Not considering all options. Today there are lots of ways to fly privately—charter, jet cards, fractional ownership, whole ownership, and more—with new programs, aircraft and operators regularly coming and going. Objectively compare all travel options to achieve the best value and safety while meeting your requirements, budget and preferences.
- Not selecting the right airplane for the mission. Defining operational requirements with an understanding of real-world contingencies is necessary to avoid costly surprises and frustrations. For example, headwinds flying west in the winter, ATC delays on congested air routes and airports, customs port-of-entry requirements, and challenging destinations (mountainous terrain, hot/high elevations, runway length, etc.) All can adversely impact the optimistic ranges advertised by aircraft manufacturers, brokers and dealers.
Becoming emotionally attached. Emotional attachment to one specific aircraft during the search and negotiation process would be a mistake; especially in the current market, there are plenty of other fish in the sea. When a seller becomes aware you have an emotional attachment to his or her aircraft, your negotiating position is substantially diminished. Keep your ego in check.
Not completing a thorough pre-purchase evaluation. This is a great example of being penny-wise and pound-foolish. Even if purchasing the aircraft from a friend or colleague, inspect the most common problem areas of the aircraft and its logs and records. The records must be comprehensive and complete. The devil is in the details of documentation. Damage history, life-limited components, and conformance with the manufacturer’s maintenance program are just three key areas that could pose high-risk to an inattentive buyer.
Not hiring an experienced aviation attorney and tax advisor. These professionals will ensure compliance with FAA and IRS regulations, often misunderstood by those not familiar with aviation. An example of a common violation is the “flight department company” — acquiring an aircraft to operate under FAR Part 91 and placing it in a single-purpose entity with no other use than to hold and operate the aircraft. According to the FAA, a flight department company is considered a commercial operation and subject to the rules and regulations of FAR Part 135, exposing the pilots to license revocation and the owners to penalties as well as tax and insurance consequences.
- Not being available and responsive. It is essential to be available to your advisors at milestone decision-points with clear, concise and direct communication. “Time kills deals”. Poor communication risks unpleasant surprises and misaligned expectations.
- Not understanding the all-in acquisition cost. These include capital and operating costs, refurbishment/upgrades, and upcoming scheduled maintenance. Don’t overestimate the benefit of chartering the aircraft to offset costs (chartering has inherent costs associated with additional flight hours, inspections, wear and tear, Part 135 certificate management, possibly additional flight crew, etc.). Budget conservatively for upgrades and incorporation of desirable optional service bulletins and unscheduled maintenance. Consider enrolling the aircraft in a maintenance services program.
- Inattention to insurance liability limits, exclusions and endorsements. Take the time to discuss “what-if” scenarios with your insurance broker to stress-test your coverage. Keep your broker informed of every contract you sign regarding operations and maintenance of the aircraft to ensure you do not inadvertently void your insurance coverage.
- Not applying early for financing. If applicable, application for financing sooner is better as it takes longer to complete the process these days. Many a closing has been delayed because the buyer procrastinated in arranging for financing.
- Rushing to complete an immediate refurbishment/upgrade project. When buying a pre-owned aircraft, avoid major refurbishment until you have flown in your new steed for a few months, unless the aircraft is acquired as an immediate “refurb project”. Take time to think through all the changes/upgrades you would like to make and then schedule it to achieve the greatest financial efficiency with minimal down-time by aligning the refurbishment with an upcoming maintenance period for sufficient lead-time to acquire the necessary equipment, parts and materials.
Today’s Bonus Point
Not seeking an experienced, trustworthy advisor: The opinions of those who haven’t been involved in the aircraft market are interesting, but inadequate and potentially misleading. As a commercial pilot and former military fighter aviator, I have sufficient flight experience that I could safely take off and land a Gulfstream 550, but it wouldn’t be as smooth as I’d like. That doesn’t mean I’m not a good pilot, I’m just not trained with recent experience in the G550. The same reasoning applies to your relative, your friend, and even your chief pilot if they are not trained or current in the aircraft marketplace and the complexities of the transaction process.
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