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ACQUIRING AIRCRAFT FROM THE U.S.

Even for the most successful business people, the acquisition of a business aircraft is a significant transaction that requires close personal attention. For many individuals and companies, this may be one of their biggest purchases and most costly assets, rendering the need for competent legal counsel essential.

AvBuyer   |   1st January 2011
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The value of U.S. Legal Counsel in your transaction

Even for the most successful business people, the acquisition of a business aircraft is a significant transaction that requires close personal attention. For many individuals and companies, this may be one of their biggest purchases and most costly assets, rendering the need for competent legal counsel essential.

The value of a business aircraft can often exceed USD $10 million, and prices for large aircraft range well above USD $50 million, so the process of acquisition requires great care and consultation with seasoned industry professionals. One of the most important professionals in your transaction process is the legal counsel.

For an overseas purchaser, particularly an Asian purchaser, the selection of legal counsel is not easy and should not be taken lightly. The purchaser needs counsel who are highly skilled in their profession and who maintain the highest level of personal integrity and loyalty. In this respect, counsel’s reputation is of utmost importance. This is equally true for U.S. purchasers, of course, although they are usually quite familiar with the U.S. legal system.

In a typical transaction in the U.S., a number of different professionals aid in the purchaser’s acquisition. Usually the purchaser has early contact with an aircraft broker. Once an aircraft is identified and the purchaser is ready to enter negotiations, a financial adviser can provide valuable services. This is particularly true if the acquisition is to be financed by a U.S. lender. Additionally, it is important for the purchaser to consult with an insurance professional, because insurance can involve a large number of complex decisions even before the acquisition takes place.

In identifying and dealing with each of these consultants in the U.S., the purchaser should have already retained U.S. legal counsel. Western legal counsel can save an aircraft purchaser from many common mistakes and misunderstandings during a first-time acquisition. Even so, the purchaser must feel secure and comfortable with its legal counsel, and there are safeguards in the U.S. legal system to provide this sense of security.

Evaluating counsel’s integrity
Specifically, attorneys in the U.S. receive their licenses from the states in which they practice. Each state maintains a code of ethics (often called Rules of Professional Conduct) to which the attorneys must comply. Failure of an attorney to abide by these rules can result in sanctions and loss of license, providing significant incentive for compliance.

Through these rules, all U.S. attorneys are subject to regulation of their conduct on such matters as client confidentiality, avoiding conflicts of interest between clients, and zealously advocating their clients’ interests in all matters to the point of being unreasonable.

Further, the nationwide American Bar Association publishes a Model Code for all attorneys in the U.S. underscoring the need for the highest professional and personal ethics.

Perhaps equally important, however, in evaluating the integrity of any U.S. legal counsel is its reputation in the particular industry in which they work. The U.S. counsel who are active and proficient in aircraft transactions are, for the most part, well known among their peers. Typically, they will be participants or leaders in well-recognized industry associations such as the National Business Aviation Association, among others.

Also, because these legal counsel work closely with professionals of many other disciplines in the aviation market, their reputations become widely known outside purely legal circles and throughout the aviation industry.

Counsel’s motivation
It is useful to be aware that U.S. attorneys do not typically work on these transactions for a commission. While commission-based advisors may be important for connecting buyers and sellers, and steering a potential deal toward a successful conclusion, U.S. attorneys advise solely on whether the contract terms are good for the client.

With U.S. legal counsel, the typical arrangement for compensation is based upon time devoted to the task. Therefore, the U.S. legal counsel will be more devoted to the client’s concerns than to the success or failure of any proposed deal. In the negotiations which take place throughout the acquisition process, the U.S. attorney’s duty and motivation is ultimately its client’s protection.

The overseas purchaser seeks not only a legal counsel who is trustworthy, but also a legal counsel who is highly skilled and experienced in these specialized types of transactions. The acquisition of an aircraft in the U.S. is a complex process, so legal counsel must be proficient in U.S. regulations from the Federal Aviation Administration as well as those from the Department of Transportation.

Counsel must understand the unique needs of aircraft lenders for any financed acquisition. Counsel must also be experienced in aviation risk insurance as well as title insurance and the requirements of the U.S. registry and the international registry - not to mention the effect of U.S. federal, state, and local tax laws governing the acquisition.

It is also important to understand that the seller and lender in any transaction will also have U.S. legal counsel. Those counsel will advocate for their own clients and will not be concerned about the interests of the overseas purchaser.

The common contract provisions for many transactions have evolved over many years and many transactions, and the overseas purchaser needs counsel which has worked with these contract terms before, and can effectively negotiate the best possible terms for the purchaser. A purchaser without similar representation will be at a great disadvantage in the drafting and negotiations of the purchase contract, as well as at many other stages of the transaction.

Further, western attorneys’ advice can be quite prompt and efficient, as many experienced aviation attorneys have access to standard form documents covering the interests of an aircraft buyer, which can be easily tailored to any specific transaction.

Moreover, upon completion of the acquisition and transfer of title, the purchaser will own a costly asset capable of flying to regions and jurisdictions around the world (and consequently will be subject to the control of foreign governments with unfamiliar laws and regulations). Western legal counsel familiar with a specific buyer’s aircraft purchase and ownership structure should be able to advise the new owner on the varied (and oftentimes complicated) regulations governing use of business aircraft around the world.

Indeed, many new owners are surprised to learn of the various restrictions and taxes on national and international business aircraft use. Some owners, unfortunately, learn of such restrictions after it is too late to take preventative measures. Extreme cases can even involve seizure of their aircraft by a foreign government. While these risks may seem remote, every precaution to avoid such an unpleasant surprise is worth careful consideration.

Western legal counsel can play a unique role in aircraft transactions and can provide invaluable advice and representation essential to protecting an aircraft buyer’s substantial investment.

Considering the complexities and risks involved in an aircraft purchase and in aircraft ownership, a potential buyer would be well advised to retain an experienced western attorney to advocate for their interests. By due diligence in the selection of U.S. legal counsel, the overseas purchaser can feel secure and confident that its best interests will be protected.

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