- 18 Jan 2021
- René Armas Maes
- Finance - Biz Av
The New Year may be the ideal time for buyers and sellers to get the wheels rolling on a business aircraft acquisition or sale. Dave Higdon shares some important tips you should know right at the start of the process…Back to Articles
While there are plenty of reasons for continued caution as we enter 2021 – the Covid-19 pandemic continues, after all – other reasons create a good feeling as we leave 2020 behind.
For example, 2021 involves no US Presidential election. And although having a new President will undoubtedly bring its own changes, a new tax year in the US brings more opportunity to buy or sell business aircraft. That is something dealers and brokers everywhere welcome… just as soon as the paperwork from 2020's eleventh-hour transactions is complete!
For many buyers and sellers, it’s time to connect with a reliable dealer or broker, and begin the search for a viable aircraft to buy, or to prepare the ground for the sale of one.
The best results come from making the right preparatory steps. To that end, we offer some tips for those in the market to buy or sell jets in 2021.
TIP 1: Draft your Team
Both buyers and sellers can benefit from the use of the right Business Aviation experts, including the professionals who can address the specific aspects of buying a business aircraft, and those who will oversee and guide the sale process.
The buyer or seller that hires the right team will receive the best advice throughout the process. In the case of the buyer, that includes selection of the aircraft make/model that best fits the company’s mission profile and focusing the search on the choices for that target aircraft, and then narrowing the list of candidates.
Factors to consider include not only an aircraft’s specifications, cabin layout and price, but also its maintenance history and cosmetics, and discussion of any potential legal and tax issues which can vary with the current location of the aircraft, its future base.
Also consider how aircraft ownership will be structured, as well as the operating structure planned for the aircraft.
For the seller, the right team will help you have a better understanding of the true value of the aircraft in today’s market, and how to position and market it well against comparable aircraft.
Remember, Business Aviation carries some unique requirements, which makes expertise in such technical subjects a must. Though some less experienced buyers and sellers view aircraft transactions as similar to shepherding a real estate deal, trying to apply real estate rules and standards to the aircraft transaction is ill-advised.
TIP 2: Consider the Financing Options Early
Early in the process – at about the same time the team of experts is assembled – buyers should weigh the aircraft finance options. For those seeking to obtain financing for the purchase, this is the ideal time to solicit loan proposals from experienced and specialized institutions.
The goal is to identify a lender that best fits with your plans and needs. Lenders with the right expertise can pay big dividends.
Negotiating loan terms is seldom a quick, easy process, and the potential lender will want to know as much as possible about the aircraft that is planned for acquisition – which can be a challenge when you’re only just beginning a search for a viable candidate.
Once a type and model is identified, though, experienced aircraft lenders may set tentative finance terms of a general nature, with final terms forthcoming once a specific candidate is targeted, and aircraft information (including type, make, model, model year, usage information, maintenance program enrolment, engine time remaining, and price) is available.
Most lenders will start their own due diligence process regarding the borrower and credit committee approval of the loan prior to the identification of a specific aircraft.
TIP 3: Understand the Tax Implications Early
Early in the process the buyer should settle on how to manage the use of a business aircraft. By taking this step early, the owning company helps ensure that all open items are addressed in connection with making an offer on a particular jet for sale.
The company should also assess relevant sales tax, federal excise tax and income tax issues, as well as FAA regulatory considerations (or the equivalent if based internationally). And it’s important not to forget planning around property and sales taxes to help ensure all the obligations are met.
Once the tax planning is complete, build the time it will take to act on that plan into your buying process.
That may require longer if the recommendation is to establish a different entity to own and operate the acquired aircraft. Sellers, meanwhile, who need to extract the aircraft from such entities and settle any outstanding tax burdens, will also require time, which can slow the progress of a transaction closing if it is not foreseen and planned for.
BONUS TIP: Never Refuse a Second Opinion
It would surprise many in aviation how often potential deals get derailed because one of the parties feels unhappy with an aspect of the deal, as structured, using the advice of their team of experts. This is where a buyer or seller would do well to solicit advice from someone not previously involved in the process.
In the same way most people welcome a second medical opinion when their health is on the line, a second opinion from an uninvolved professional, who can review the deal as it is set, can be useful, and can even end up saving significant sums of money.
Will a second opinion add to the time required? Almost certainly – but not as much as the parties could otherwise expend debating the final details. In the end, both parties will be happier with an outcome they can shake hands on.