What are the best strategies for negotiating a business aircraft transaction that all parties can feel good about? How should buyers interact with sellers when it comes to final negotiations and closing? Andre Fodor, Aviation Director, Johnsonville shares his thoughts…
My very first job was in door-to-door sales, enabling me to earn money for flying lessons. During that time, I discovered the complexities of a sale. Buyer and seller each have different expectations and need to find the common ground that delivers a deal both can feel good about.
It became quickly clear that transparency and disclosure are landmarks of a successful business transaction. Delivering quality and value for a fair price builds relationship, generates repeat clients, and creates new business opportunities.
What I learned then is true today in the world of aircraft transactions.
Anything related to private aviation requires large sums of capital. However, price should never be the sole indicator of a good deal. The careful selection, negotiation and purchase of a new or pre-owned aircraft will set the standard for a great ownership experience. And a crucial component of any successful transaction is a well-managed pre-buy inspection.
Begin With the Logbooks
The pre-buy inspection is at the buyer’s expense, so before taking the airplane to your chosen inspection shop, review the logbooks and records. These will give insight into how the aircraft has been maintained, and by whom.
It will identify issues that could either be a deal breaker or must be corrected before you proceed to invest in the pre-buy inspection.
During a past transaction, I found that several years of record keeping for an FAA-registered aircraft had been documented in a foreign language. Although I had no doubt that all the necessary maintenance had been performed correctly, the records needed to be translated to English (at the seller’s expense) before we could proceed with the transaction.
Hire the Right Expertise
The importance of having qualified people supporting you cannot be overstated. For example, an experienced broker will help analyze projected operational costs, upcoming maintenance events, future overhauls and required upgrades that will affect the purchase price and residual value of the aircraft.
An experienced mechanic with intimate knowledge of the airframe, meanwhile, will know the critical items to inspect and prevent unexpected and unpleasant surprises.
Establish the Acceptable Expenses
Once you have a solid team around you, what should your expectation be as your aircraft enters the pre-buy inspection? What are acceptable expenses to the seller and/or buyer? The answer can vary...
Not long ago, I managed the sale of a fairly new pre-owned Large Jet. It only had 800 hours on the clock and was less than five years old. Naturally, we expected a clean bill of health from the pre-buy inspection.
It was a surprise to all of us when the inspector found a manufacturing defect in the inside of the engine’s cowling. The OEM was required to fix a bad rib installation that had never previously been identified, since the airplane was too new to have had its cowlings removed for maintenance or inspection.
While in this case the OEM would clearly be paying for the repair, the transaction stalled for three weeks; the pre-purchase inspection costs increased due to aircraft storage costs; and the airplane was grounded until the problem could be remedied. Mutual cooperation kept the deal together, ultimately.
Things are often not so clear-cut.
In the case of another aircraft undergoing a pre-buy inspection, a long discrepancy report resulted. After reading the report, the buyer in their haste to complete the transaction directed the repair facility to correct all discrepancies without sharing the report with the seller or obtaining permission to repair the items.
The buyer neither understood the pre-buy processes nor the language on the Letter of Intent (LOI), and their action yielded a $120k repair bill.
The seller refused to pay since the repairs had not been approved. Moreover, most of the items didn’t affect airworthiness. The buyer responded by walking away from the deal. The result was a lien against the aircraft, placed by the maintenance facility, and several years of messy litigation between seller, buyer and service shop.
Beware! A discrepancy list must be shared, and agreed with the seller. Only the selling party may approve charges related to the aircraft’s repair.
Your expectation of what must be repaired in a discrepancy list may not be the same as the seller’s. The pre-buy inspection report will list every discrepancy found, not just the ‘must do’ items. Minor paint touch-up items (for example) will be listed individually and, consequently, discrepancy lists can appear lengthy.
Begin by clearing the list of the easy items. Light bulbs, cabin upholstery stains, veneer scratches and paint touch-ups are all low-cost items that, once removed, can shorten a long discrepancy list significantly. This process will help leave only the bigger items to be discussed during the final contract negotiation.
Once you have the final inspection report, it’s time to review and negotiate. Keep in mind that the pre-buy inspection could find issues that wouldn’t normally be identified during scheduled maintenance, so the seller may be surprised by some of the findings. The LOI should provide the framework for negotiating discrepancies along with an exit strategy if an abnormal issue arises.
Renegotiating Contracts When Necessary
Where necessary, renegotiating a contract to accommodate unexpected findings is fairly common and can benefit both parties. It may result in a reduction to the purchase price; require repairs to be made before the deal closes; or a mix and match of both.
It’s important to be fair, transparent and share your concerns openly. Good will is an important part of this process. Finding common ground between buyer’s and seller’s expectations is the ultimate goal.
Everyone wants a good deal. A successful transaction provides both parties with that satisfaction. This will yield intangible benefits to the buyer relating to the overall ownership experience and will surely be money in the bank.