Who Loses in an Aircraft Seller Default?

With pre-owned business aircraft Sellers so firmly in the driving seat in today’s lightning-fast market, what’s the fall-out in the event of a Seller default? Mike Zabkar discusses the impact, along with how to safeguard against it…

AvBuyer  |  03rd June 2022
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A row of private jets parked at the airport


We are in the midst of exceptional market demand, and retail pricing seems to have no bounds. The days of agreeing on the terms of a deal with a good old-fashioned handshake were over long ago. The corporate buyer, once the backbone of aircraft sales, has fallen behind High Net-Worth Individuals (HNWIs), wealthy families, and trusts.

Market demand and availability has clearly influenced aircraft purchase/sale agreements. The “As-Is” paragraph has taken on a different meaning, i.e. “No Pre-Purchase Inspection (PPI), no kicking of tires - just ‘light the fires’, and you’re off”.

These days, even mid-PPI (where they occur), if the Seller gets a better offer, they’re gone, “See Ya!”. Sellers are prepared to pay the existing Buyer’s expenses and rush to the highest bidder – ‘contract be damned’! 

It’s worth lingering on the “See Ya” for a moment to ask how the ‘default’ is worded within the agreement. Who is losing out? Obviously, the Buyer is losing out, having, in good faith, put up a deposit, signed a contract, scheduled a facility, technicians, pilots, and more. But how about the Buyer’s broker?

How many potentially hundreds of hours get invested into seeking out the right aircraft – or at least the one with the fewest compromises – for the Buyer? In the case of a Seller default, a reasonable contract holds the Seller accountable to reimburse the Buyer for all direct expenses, inspections, etc.

Frustrated and upset, the Buyer will either move on, looking to the broker to find another aircraft, OR in many known cases have said, “I’ve had enough of this market” and continue to charter, or stay with their current airplane.

As for the Buyer’s broker, it’s not as simple as finding another aircraft and getting paid…

In today’s market, brokers are working more hours, incurring more expenses through advertising, and travel, and in most ‘Default’ instances they lose out on an anticipated commission.

Time to Reword the Purchase Contract

For those sale/purchase contracts with more than one page (the industry average is closer to thirty pages now), maybe it’s time to revisit and add some new language under Seller Default.

What if there was language in Seller’s Default that said something along the lines of…

In the event of Seller’s default prior to the Closing Date, Buyer, shall be entitled to receive immediate release of the Deposit plus Seller agrees to reimburse Buyer for three times (i) its actual out-of-pocket cost of the Inspection, (ii) the Buyer’s Flight Costs paid or reimbursed to Seller, including Buyer’s Flight Costs with respect to the initial visual flight test that took place in accordance with the Offer Letter (if any), and (iii) all reasonable documented costs, expenses and fees (including fees of consultants, brokers and attorneys) incurred by Buyer in connection with the transaction, within five (5) Business Days of written demand by Buyer.

Buyer’s rights to receive the amounts expressly set forth shall not limit the remedies available to Buyer in the event Seller defaults on Seller’s obligation that may otherwise be available to Buyer.

While your legal team can ‘word smith’ the language, the intent is spelled out. There is a compelling need for a real penalty for a Seller to willingly walk away from a valid contract because the Buyer was outbid, or any other post-contract ‘market frenzy’-related default.

Would this type of language be embraced by the Seller or its counsel? Why not? The intent is to sell and deliver the aircraft. Most contracts, over one page, spell out pertinent terms and conditions. Just as importantly, it introduces language to both the Seller and the Buyer that the Broker has a role in this, and its fees are valid expenses that must be paid.

It Couldn’t Hurt…

It could be that this type of language within an agreement is objected to, and deleted from the contract. The issue will at least have been raised and discussed. Perhaps the Seller will think twice before considering, or accepting, a higher offer, post contract. Or maybe the Buyer’s broker gets its due consideration and compensation in the event of a default.

Who knows? Maybe, just maybe, the aircraft transactions become a little more professional, and a little less stressful for everyone as a result.

With enough Aircraft Brokers/Dealers addressing the issue it just might get some traction. After all, what’s to lose? A contract concession the Broker didn’t have to begin with? It could just hold a transaction together. It needs addressing, because by most accounts, the current market conditions will last through the foreseeable future, into 2023.

MIKE ZABKAR/GLADA

Mike Zabkar (pictured left) is President at U.S. Jet Search, LLC. and has over 45 years’ experience in aircraft acquisition, sales, and consulting.

He is a Board member of the Global Licensed Aircraft Dealers Association (GLADA) which strives to be the leading advocate in the fair business of buying, selling and leasing business aircraft. More information from www.us-jet-search-llc.com or www.glada.aero



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