- 18 Aug 2017
- Jet Tolbert
Jet Tolbert highlights how acceptance of two basic principles early in an aircraft transaction process will make sure you attain a fluid move out of your old aircraft and into the new one.Back to Articles
Aircraft broker Jet Tolbert highlights how acceptance of two basic principles early in an aircraft transaction process will make sure you attain a fluid move out of your old aircraft and into the new one.
The first of our two basic principles is that there are only three options to an aircraft trade. These are:
Sell Before Buying
The defining feature of this option is that the proceeds from one transaction are applied towards the purchase of the replacement aircraft. The buyer doesn’t have the financial burden of owning two aircraft, plus under this structure you never need to manage the upkeep and storage of more than one aircraft at a time.
The problem is that no matter how good you are at timing two transactions one after the other, there will be a period during which you will be without an aircraft. Nevertheless, working with the right brokerage firm can make all the difference when it comes to dovetailing the transactions.
Managed properly the downtime can be restricted to only the days/weeks it takes to perform the pre-purchase inspections
If you plan to buy a new aircraft in this fashion, it would be wise to give yourself ample time to sell the current aircraft – allowing as much as three months in advance of the anticipated delivery of the new aircraft.
Do not underestimate the time required to get a compelling marketing campaign in place, and for the right broker partner to work the existing pool of prospective buyers for your aircraft to arrive at the best possible sale price. The earlier the process of selling your aircraft is started, the more options will become available to you.
It may suit you to cut out the advertising of your aircraft and to simply drop it off with the OEM or dealer, picking up your new airplane in the process. If so, you will need to keep in mind that because there is no retail buyer for your airplane you will receive a wholesale value for your trade-in.
In addition, while the wholesale buyer might not be paying a retail price they will still need to inspect your trade-in to check for any deal-killers as well as assess the aircraft’s mechanical condition.
This inspection could take several days/weeks while the dealer performs their Pre-Purchase Inspection.
There might be an option for you to drop the old airplane off and fly away with zero downtime by leaving a large deposit in escrow (to cover subsequent discovery of mechanical deficiencies, damage history, major corrosion, etc.). Usually, though, the trade-in buyer will still have some downtime during the days or weeks while the trade-in is assessed.
Buying Replacement, Then Selling Old
This option removes any possibility of downtime. If your business needs require you to stay airborne, regardless of cost the only solution is to take delivery of the new aircraft before selling the old airplane.
If this is the option for you, there are alternative financing structures available - including short-term and bridge financing – making this a much more feasible solution today than in recent years. Still there will be some additional costs of finance, storage and maintenance of two aircraft, however…
You Will Sell Regardless…
So what of that second principle? Irrespective of the order in which you choose to sell, you will have to sell your airplane – and that takes time…
Whether you sell retail or wholesale, there is a process – including a comprehensive Pre-Purchase Inspection – and this should always be factored in your planning to avoid unnecessary surprises and pressures.
Finding the Right Option
If you can accept the two key principles highlighted above, you will avoid the headache of needing to reinvent the wheel for the purpose of transitioning from one aircraft to another.
Once you have your aircraft on the market you will be in a better position to identify your short list of candidate replacement aircraft with strengthened bargaining power. Alternatively, if you are buying a new aircraft you will be in a position to offload your old one at the time of delivery. In both cases you will achieve a retail price and still align a trade for tax purposes.
This is where working with the right partner makes a significant difference. There can be no substitution for experience. Working with the right broker will help you get ahead on this moving target and ensure the highest possible value when you’re ready to bring in your next aircraft.