- 09 Jan 2020
- Andre Fodor
- Aircraft Ownership
Buying a Jet? Here's What to Avoid...
What are the buying practices to avoid in a business jet transaction? Why do they cause problems, and how should buyers act to enable a smooth, successful aircraft purchase? Aircraft broker Jet Tolbert shares his insights…
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Jet Tolbert
Jet Tolbert is president of Florida-based American Aircraft Sales where he oversees all aspects of aircraft...
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Buyers of business jets tend to be savvy investors and businesspeople. Often the nuances of their businesses lead them to look to Business Aviation as a tool to increase business growth and profitability.
There are, however, some pitfalls that those in the market for an aircraft should avoid falling into. Here are five of the most common…
1) ‘Subject to Finance’ Deals
It’s very rare that a seller will take an aircraft off the market while a prospective buyer sorts out their financing options. When you’re ready to enter the market, you should pay a refundable cash deposit of approximately 5% the aircraft’s value into escrow immediately. The balance should be ready to fund within 30 days of an offer acceptance.
A financing bank could feasibly fund a purchase within two weeks of receiving the requested documents and loan application. This may not seem long, but if questions arise about corporate finances and the nature of the loan guarantees, the process may stretch beyond two weeks, leaving plenty of room for a buyer to get cold feet.
For this reason, sellers are generally reluctant to remove aircraft from the market when they receive an offer ‘subject to finance’ or send other signals they’re not fully committed.
2) Using Non-Aviation Legal Counsel
There was once a saying in the aircraft sales industry that attorneys kill deals. This may well have emanated from the experience many sellers had with buyers whose legal counsel had little or no aviation knowledge.
A good aviation board-certified attorney will offer a wealth of information that doesn’t need to be researched, thereby expediting the process and protecting against the possibility of a transaction going awry.
This wealth of information often comes at a significantly lower cost when compared to a non-industry attorney who may focus on the wrong details.
While good and bad attorneys exist in all sectors, buyers who do due diligence to find the right attorney will greatly ease the process.
3) Changing Terms of a Deal Mid-Stream
It’s always tough to renegotiate things like the inspection work-scope after the price and terms have been agreed, and the deposit placed in escrow. The seller will understandably say the price agreed is based on the ‘exposure’ of the original agreement.
Every pre-purchase inspection will turn up discrepancies that a seller must repair. The larger the inspection, the larger the bill is likely to be for the seller.
Buyers may simply insist on a large inspection scope from the outset, but they’re unlikely to find sellers receptive and may end up with a lost negotiation. All aircraft have recurring, cyclical maintenance, so there will never be a pre-purchase inspection that negates all future maintenance exposure for the buyer.
It’s better for buyers to be well informed on the maintenance condition of an aircraft and its upcoming maintenance events before entering into a sale agreement. The pre-purchase inspection is then more likely to confirm a buyer’s realistic expectations.
4) Consistent ‘Low-Ball’ Offers
The business aircraft markets are dynamic and the brokers and dealers in the business are keenly aware of values, ready to snap up a well-priced airplane for their savvy clients.
However, approaching every seller in the market with offers that more closely resemble a ‘steal’ will waste a lot of time for everyone involved, and won’t get you far.
Buyers should in fact be very cautious if an especially low offer is accepted, as it may indicate the aircraft holds a surprise answer to a question the buyer hasn’t asked yet...
5) Waiting for a Confidential Sale of the Current Aircraft
Most buyers don’t want to own two airplanes. Nor do they want to get stuck without an airplane. Sellers understand this. However, things get tricky when a would-be buyer is waiting for a sale to go through on their existing aircraft to a ‘buyer’ that had previously expressed an interest.
There are a lot of interested ‘buyers’ out there, but when the time comes to put their money where their mouth is, things tend to drag out and the pool of buyers shrinks.
The most efficient way to transition to your next business jet is to actively market your current airplane first. Put yourself in the position of having qualified back-up buyers. This will increase your own bargaining position and make you best placed to act quickly when you need to.
In Summary…
The above points are all important, but they only scratch the surface of the underlying issue: The most educated buyers, with the best information, and the ability to act fast, get the best deals and smoothest transactions.
An established, qualified aircraft broker will garner the most attention for your needs and the best results. Taking advantage of an opportunity is about far more than being at the right place at the right time. It’s the knowledge and experience that makes all the difference!
More information from www.americanaircraftsales.com
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