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Aircraft Transactions Dissected & Explained

In truth- my first thought upon being tasked with writing the following article- was that the topic seemed pretty unnecessary. Surely anyone reading this publication already has a good understanding of the aircraft sales transaction process- I mused. Furthermore- several of my friends and family objected because they believed that I would be giving away trade secrets.

Jeremy Cox   |   1st January 2012
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Jeremy Cox Jeremy Cox

As Senior Aircraft Appraiser, Vref, Jeremy Cox enjoys direct interface between aircraft...
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In truth- my first thought upon being tasked with writing the following article- was that the topic seemed pretty unnecessary. Surely anyone reading this publication already has a good understanding of the aircraft sales transaction process- I mused. Furthermore- several of my friends and family objected because they believed that I would be giving away trade secrets.

I thought long and hard about the composition of this piece- and came to the conclusion that many of the objections raised were without any real substance- as I shall explain…
First- although the paperwork necessary to complete a transaction is clearly uniform (as defined and required by the Federal Aviation Administration)- no two deals are the same. The variables can take on a very distant similarity to each other - but each is as unique as the people that are brought together in the making of a ‘deal.’

Second- there really are no trade secrets to reveal! A successful sales transaction can be defined in two ways:
1. From the Buyer’s Perspective: The path to nirvana is found by purchasing the youngest- lowest-total-time- latest model- damage history-free aircraft- with the best equipment- highest possible modification status (with the cleanest maintenance records and the most tasteful cosmetics) - all for the very lowest possible price- of course. [That’s unless you believe - like most people do (it’s humannature- after all) - that you will only buy an aircraft if you can ‘steal it’ and disregard the other factors that will ensure the highest possible resale value later on.]

2. From the Seller’s Perspective: Simply to get absolutely the highest possible price that you can- for the least amount of discount and/or concessions at pre-buy; complete the deal; and walk away with a smile on your face.

The Art of the Deal

The 500BC Chinese Emperor Sun Tzu is credited for the later embodiment of the anachronism “Bu siness is War.” As evocative and stirring as this assertion is- the very best sales professionals on this planet never achieve the pinnacle of their profession by taking this as sacrosanct. Every successful negotiator and deal maker knows that if both parties involved in the opposite ends of a transaction don’t walk away from their deal genuinely believing that they won- then the transaction is on a sea voyage of dangerous and shallow waters.

The ability to bring two Type A personalities together and to lead them through the closure of a sane- effective and winning transaction is truly an art. People that own their own Business Aircraft are highly skilled- intelligent- successful- and above all- savvy people. Obviously they are at the pinnacle of their chosen business- and yet their judgement can become clouded when it comes time to trade their jet.

Part of this failing is fuelled by the presence of the internet. Since it has penetrated into every aspect of our modern lives- the internet has provided us all with an unnatural belief that we are instantly ‘brilliant’- because with a few key-strokes we have access to the collective brain of humanity along with all of its random thoughts- ideas and prejudices.

Unless you are watching the used aircraft market and trading within it every working day- how can you possibly put together and complete the absolute best possible deal you can make?

Without wishing to labour the point- picture the Chief Executive of a Fortune 500 company that is one of the top manufacturers of industrial ovens (for example). This business leader possesses a commercial pilot’s license and was previously an ex-military fighter - and the internet has led them to believe that buying and selling their own jet is small potatoes- and easily accomplished in its entirety.

Does our sample business leader do all of his own corporate tax accounting- or compose all of his corporate business legal contracts? Does he weld- inspect and approve for shipment every oven that his company sells? Of course not! He hires and pays professionals for that. So why would he choose to go-italone when it comes to the sale or purchase of a jet?

Recognizing the possibility of offending with this assertion: None of you are an expert in the Aircraft Market- hence my simple Health Warning: Brokers are good for your fina ncial h ea lth. With that assertion made- let’s review some of the finer issues that impact the Aircraft Sales Transaction.


To achieve 100% success in making a deal- a detailed and systematic process of identification- comparison- analysis and selection should have been completed- with the end result being three thoroughly vetted ‘best candidate’ aircraft decided upon before any negotiation is started.

The intent is to ensure that your knowledge and expectations regarding the candidate aircraft is founded on fact resulting in you- the buyer knowing as much about each purchase candidate Aircraft as does each seller. Then your negotiations may confidently proceed.

Before you execute an offer to purchase or Letter of Intent- you should have firmly established what the maximum number is that you are willing to pay for the aircraft (along with what your ideal number is); and what you consider to be ‘a steal.’

Emotion often sits on your shoulder whispering in your ear. This must be brushed off. When you are ready to buy- you should never let your decision-making powers be driven by emotion- lest you immediately start out from a weakened position and risk overrunning the maximum price established prior to the start of the process.

The chances are that you will regret an emotion-fuelled purchase.

Pricing and Value

There are several rules regarding price and value that must be understood:

• The Best Valued Aircraft is not necessarily the Lowest Priced Aircraft;
• In this Post-Global Financial Crisis environment- “wholesale” no longer exists;
• An Aircraft is only worth what someone is willing to pay for it;
• Don’t buy from friends. They are as green as you are when it comes to the used market. One- or both of you will likely live to regret entering into the transaction;
• No aircraft left production being better built (from a value standpoint) than all of the others. Many sellers- especially if they also crew their own aircraft- have a deeprooted conviction that their aircraft is better than most other similar aircraft- because they are emotionally attached. Reference the sheer number of used aircraft that are languishing unsold because the owner can’t face up to the true market value.

During the critical process of buying the right jet- if well executed- you will have found the ‘next aircraft to sell’ in the market of that moment. There is a good chance that someone else has gone through the same process that you have been through- has also concluded that your top choice is also their first pick. Consequently- you may find it is under contract if you don’t move swiftly.

When you are ready to make an offer- you must be ready to back that piece of paper up with immediate action. Don’t believe that you can negotiate the best price and then put the transaction into limbo because you now have to search out- and secure a lender that will provide a loan for the purchase price. All of your financing and/or liquidizing of capital should have been completed long before you sent your offer to the seller.

Whenever I receive an offer for one of my exclusive listings- and the document specifies that the purchase is predicated on financing approval- I almost always advise my selling client to disregard this offer as one to be taken seriously. The bottom line is that if you don’t yet have the money to buy the aircraft- why are you making offers?

Finally- for every one of us that is looking to purchase anything- the Holy Grail is to negotiate a price so low that it is valued by the seller to ridiculously below the prevailing market conditions- or where you find a seller who is faced with financial ruin (or other circumstance) that forces an immediate sale at any price.

This does indeed happen occasionally - but it is very- very rare. Armed with this knowledge you should know what your starting number will be: Don’t make the mistake of offering a ridiculously low number if you are approaching a seller who is of equal (or better) strength than you in the marketknowledge department. You will not be taken seriously now- and probably will never be able to redeem yourself with that particular seller.

If you do take the auction approach to your offers- you will most likely rocket past your maximum limit in a very short space of time indeed.

The Contract

Understand this: It is absolutely impossible to write a contract that totally eliminates all possible liability. Just getting out of bed in the morning sets us all along a path that hides a plethora of liabilities. It is therefore inconceivable that any aircraft sales contract should be more than 25 pages in length.

I have safely bought numerous aircraft for clients with a five-page agreement. Unfortunately I have had to endure 50 and 60 page contracts on some deals - all because the in-house attorney of the buying company didn’t take the smarter approach by hiring an aviation attorney. It can feel at times as though some attorneys bill their clients by the word- as well as by the hour!

If you insist on using in-house counsel- at least allow your broker to supply them with some example contracts to expedite their understanding of aviation jargon and the accepted legal practices that pertain to an aircraft purchase.


Under the Law of Contract- the elements of a valid contract or agreement are an offer- an acceptance- and an exchange of consideration. If one person offers to sell something- the other party agrees to purchase it and money changes hands - thus a valid purchase agreement has been made.

A vitally important step in an aircraft sales transaction is essentially the buyer showing both capability and willingness to perform on his/her promise by putting up an ‘in good faith’ or ‘earnest’ deposit. In the U.S.- the absolute best place to lodge a refundable deposit is with an FAA-recognized escrow company. Virtually all of these companies are located in Oklahoma City- Oklahoma - the same vicinity of the FAA’s Aircraft Registration Department.

Some buyers choose to escrow their money and have the required FAA paperwork administered by an aviation attorney in Oklahoma. Always do your homework first by making certain that the holder of your earnest money is both contractually obligated to return your money to you and not to any other person if the deal ever goes south- and that your deposit is bonded and insured against any subsequent insolvency of the holder.

The best escrow companies can also provide you with a formal and accurate title and lien search report- as well as all FAA and International Registry filings on your behalf. Title insurance- like in a real-estate purchase- is available to you - but think long and hard about buying any aircraft that has such a questionable ownership history that the purchase of title insurance is necessary.

The Pre-Buy Inspection

It is alarmingly common for the folks that obstinately choose to be their own expert in an aircraft sales transaction to entirely skip the vital Pre-Buy inspection. Many live to regret it - especially if a messy can of worms emerges later (during the ownership of the buyer that you sold to and the statute of limitations on major legal action has not been surpassed).

The pre-buy inspection is the ultimate litmus test that must be passed before the deal is closed. This inspection protects both the Buyer and the Seller in a lot of ways. Often- though- the most unfortunate party in this process is the inspecting agency chosen for this task because they end-up not getting paid- while both parties are mad at them.

This situation is totally unnecessary- but unfortunately is all-too-common if a Broker is not involved. Many Repair Stations will not even refer to the inspection that they perform on behalf of the buyer as “a pre-buy” or “prepurchase” inspection (their attorneys have told them not to). A properly orchestrated pre-buy inspection should never leave any party involved financially injured if the transaction goes awry and is called off due to unexpected findings. As a seller- never let your aircraft go to pre-buy unless:

• All parties (buyer-seller-inspecting agency) fully understand and agree as to what the complete work-scope is going to be (beware piecemeal inspections);
• The agency is paid-in-full for the entire work-scope prior to the work being started;
• A clear- unbiased and cogent determination is made of what items that will be found as a result of the inspection are either ‘Cosmetic’ or ‘Un-airworthy.’ If the agency is unable or unwilling to provide this ruling then you have chosen the wrong agency to perform the pre-buy.

It is easier for an agency to provide an accurate report of a formal inspection accomplished (one specific to the aircraft and normally mandated by the manufacturer as required during the normal maintenance and inspection cycle) as opposed to a haphazard list of known problem areas inspected as a stand-alone procedure.

If you are selling- I beg you to not let your aircraft go to pre-buy with known problems unless you have alerted the inspecting agency that you are having them fixed while it is there for the pre-buy. The chances are almost certain that the problems are discovered and that you will be giving a much bigger discount (or paying more money in repairs than you ever would if you had either corrected on your own- or disclosed the fault beforehand). Trust me on this point.

In addition- remember that your purchase agreement is likely committing you to warrant that the aircraft is going to be delivered in an Airworthy Condition. If you sell it with a known defect- are you not exposing yourself in the future?

The Paperwork

In concluding this article- I will leave you with a list of the necessary elements of the paper-trail required to complete a successful Aircraft Sales Transaction. These include- but are not necessarily limited to- all of the following documents:

• Aircraft Specification;
• Offer to Purchase or Letter of Intent;
• Escrow Deposit Confirmation;
• Purchase Agreement;
• Title and Lien Report;
• Pre-Buy Report;
• Aircraft Technical Acceptance (makes the Deposit ‘Hard’ subject to the Seller fixing the Un-airworthy discrepancies found during the pre-buy);
• Power of Attorney for the Escrow company to act for the buyer in the filing of registration with International Registry (if applicable- but likely);
• Pay-off and release notices if the Aircraft is subject to any Liens;
• Application for FAA Aircraft Registration (FAA Form AC8050-1.) Don’t forget that the ‘pink slip’ must be carried on board the aircraft after closing;
• Declaration of International Operations (if applicable);
• An FAA Aircraft Bill of Sale (FAA Form AC8050-2 supplied and signed by all Sellers – if the aircraft is a fractional share aircraft- this Bill of Sale can have 16 or more signatories);
• Warranty Bill of Sale;
• Trust Agreement (if applicable);
• Aircraft Delivery Receipt that also includes a Notarized Fuel Receipt;
• Closing Statements and Instructions from both the Buyer and the Seller;
• Insurance Certificate or Statement of Coverage (optional); and
• Subscriptions Transfers and Enrollment Agreements (if applicable).


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