If you’ve been planning to buy an aircraft, seen the right match for your mission need, and are ready to begin the transaction process, you’ll need to prepare a Letter of Intent (LOI).
Typing out a brief letter to the seller before signing the contract and flying your new purchase home sounds straightforward enough, but very little in the aircraft acquisition process is ever quite as simple as it sounds.
There are a few issues that can easily frustrate the process if you don’t understand them fully. Following are three common buyer assumptions and mistakes about the LOI that have caused problems and unnecessary headaches in aircraft transactions in the past.
MISTAKE 1: The Letter of Intent can be used to gauge a seller’s interest and price…
It can be tempting for buyers to test the seller through the LOI, but this approach can have some adverse effects. Firstly, a ‘flakey’ approach to offers and LOIs can frustrate sellers in the market, and you could quickly gain a reputation as being a ‘nonserious’ buyer, which could ultimately cause you to miss out on the ideal aircraft.
Second, you may sign and commit to a deal that you must follow through at greater expense (time and capital) than you anticipated.
Worse, you could eventually realize that you’re overpaying for the aircraft, or have chosen the wrong one altogether.
These costly mistakes can be avoided by recognizing the insights and knowledge of a well-established broker, who's experience of transaction psychology, accounting, mechanics and piloting needs will far outweigh any gained through misusing the LOI.
By hiring the right professional, you’ll gain a better understanding of aircraft for sale, and better perspectives of the wider market. The right broker will also highlight the value points that really matter as you make your offer.
MISTAKE 2: Agree the Letter of Intent and sort out the rest later…
Unless you have the operational and financing aspects of your acquisition lined up, you should not submit an LOI. Similarly, if you’re selling an existing aircraft, wait until you have a deal lined up for that before you submit your Letter of Intent for the one you’re buying.
Letters of Intent that are written with a view to sorting financing, or an existing aircraft sale later tend to fall apart later.
Other that incurring needless expense (for buyer and seller), the buyer’s reputation within the selling community will be tarnished. In this scenario, future offers from the buyer tend to be downgraded by sellers.
MISTAKE 3: Perfect the Letter of Intent before paying a deposit and signing the contract…
Ultimately, sellers want to see money in escrow and a signed contract. The LOI is usually a ‘placeholder’ and contains language that it is still subject to the final contract.
While buyers need to be clear enough for the seller to understand exactly how they want to proceed, they don’t need to get so entrenched in the process that the logistical questions that come into play give the seller a headache.
There is a fine line to getting the right balance with your LOI.
There are ways to assure the seller that you have all your ducks in a row without entering into a protracted negotiation about the minutiae. And when a seller responds to a LOI, a quick mark-up or response indicating what would be acceptable in general terms is a great way to begin.
Most importantly, get the refundable deposit into escrow and start moving towards the contract.
Nearly all aircraft sales will see the LOI leading up to final contract. Get it right, and you set yourself up on the road to success. However, you should start working with your broker long before reaching that stage.
More information from www.americanaircraftsales.com