- 10 Dec 2021
- Chris Kjelgaard
How are pre-buy inspection disputes in pre-owned business aircraft sales resolved? Better still, how are they avoided? Concluding his discussion, Chris Kjelgaard explores the importance of clear communication throughout the process…Back to Articles
Buying a pre-owned business aircraft is an expensive, complex proposition, as you would expect when the purchase of such a sophisticated and valuable asset is involved. It becomes even more complex if communication is not clear relating to the pre-purchase inspection…
Given all of the important required contractual details specified in Parts 1 and 2 of this article, it may appear that transactions involving sales of used business aircraft frequently fail to close. But in reality it is rare for deals to fall apart, the experts interviewed for this article agree.
“Most people are so invested in the deal that they want the deal to close,” Lee Rohde, President and CEO of Essex Aviation says. “It’s pretty rare for deals to fall apart if everything is covered in the purchase agreement.”
But while the principals’ mutual desire to complete the deal may be the most compelling underlying reasons why relatively few used aircraft sales fail to close, a successful outcome involves a great deal of hard work, coordination, and communication by the principals’ intermediaries to make sure the transaction proceeds to the close.
In every transaction there is always a need for the three major parties involved in the pre-purchase inspection process — the two principals along with their representatives, and the inspection facility — to communicate clearly and often, says Rohde.
The inspection facility should communicate its findings from the inspection as it progresses. “Having people on-site on a regular basis helps the process too — it helps things move along,” he adds.
In fact, the parties should “continuously communicate” during the pre-buy inspection process — particularly the service center performing the pre-purchase inspection, says Jim Mitchell, an Executive Sales Director for Elliott Jets . But it isn’t always easy for the principals and their representatives to make sure this happens.
“From the service center’s viewpoint, they are all extremely swamped [currently] and they are struggling with communication,” he says. “They are dealing with 10 to 12 of these projects at a time, some of them massive. So, from the buyer’s and the seller’s viewpoint, they have to be patient but also persistent.”
Usually, when areas of disagreement arise between the principals, they should let their expert intermediaries reach mutual consensus first on possible solutions and then — after the intermediaries advise them on what those solutions might be — agree on a final decision, Scott Burgess, Founder of Fort Lauderdale-based Aviation Legal Group suggests.
“In my experience, some things are better for us lawyers to talk about and there are some things where it’s best for the principals to talk about,” he says.
The Best and Worst Courses
In most cases, the best course is “to allow the parties’ representatives to narrow the issues and find out the cost associated, so the principals can make the decision,” Burgess suggests.
Each principal’s legal counsel and/or technical representative “will notify the client there is an issue, and will work through it and present alternative solutions. There is always more than one way to resolve an issue, some more palatable than others.”
The least palatable option will be going to court to try to resolve a dispute, according to Burgess. “Litigation is the least effective and least efficient means of resolution,” he stresses, taking time and lots of money. The result is very rarely appreciated by either principal. While the court case continues, neither party has the use of the aircraft.
Often it is best for the representatives to remind the principals that “there is cost to both parties if the transaction doesn’t consummate,” Burgess adds. Time mounts up; the aircraft isn’t available for service; and the transaction costs increase.
While each principal would like to feel they are the “winner” of the transaction, “sometimes the best solution is compromise when neither is particularly happy — but it will be behind you, and you will have certainty.”
If the deal fails to close because of a dispute over pre-purchase inspection findings, “the seller has got to fix the aircraft anyway if the buyer walks away,” says Rohde. Unless the seller subsequently decides to keep the aircraft, the seller will have to begin the sale process all over again, incurring substantial new costs in doing so.
Transactions flow best when the seller is a “good” seller and “wants the buyer to have a good, clean airplane,” Rohde summarizes. At the same time, it also helps the deal for the buyer to demonstrate flexibility and understanding — a point a good technical representative and legal counsel will make to the buyer.
“We tell them there are costs involved in these transactions. If the seller has big [repair] costs, we ask the buyer to be sensible and fix small [non-airworthiness] discrepancies after the close,” at the buyer’s own cost, he adds.
Sellers should realize that “a ready, willing and able buyer who really wants the aircraft is a lot better than another buyer, even if that buyer is willing to pay more,” concludes Burgess.
Read More About: Pre-Buy Inspections