Today’s used jet sales market creates an increased opportunity for cross-border transactions. Aircraft Broker Jet Tolbert asks why more buyers and sellers don’t consider the registration process as an opportunity to add extra value to an acquisition?
Last month we covered cross border relationships and noted that the technical aspects of the aircraft itself are part of the used aircraft sales equation. This time we discuss an additional yet very important factor—the aircraft’s registration. Whether you are a buyer or a seller, registration can impact the perceived value or total cost of the aircraft.
An aircraft’s registration sends a clear signal regarding the standard to which the aircraft was maintained and where it likely spent most of its time. These issues and the perceptions associated with them can create significant hurdles to the sale if not properly managed.
Like it or not, there are psychological barriers that create a selection bias among buyers. If you suggest to a US buyer that they should consider acquiring an aircraft that is currently on a foreign registry, you may well be met with a glazed look.
Well informed (and advised) buyers, however, can turn a perceived barrier into an opportunity by finding an overlooked diamond in the ‘rough’.
Likewise, a well-informed seller (also with good advisors) can be better positioned for a successful sale.
Many great deals are being made cross-borders. Today, globalization has profound impacts on the aircraft sales process, and buyers should consider how the domestic and international markets interact to determine the best value and total cost of an acquisition.
When considering a trans-border transaction, a buyer should understand the technical aspects of the available aircraft’s current registration, as well as the registration options going forward if that aircraft were purchased.
The Buyer’s Perspective
Acquiring an internationally-registered aircraft often has little practical impact on a US buyer. Many times the process can be as simple as performing an FAA inspection concurrent with the pre-purchase inspection, with no additional downtime required. That being said, there are other times when the change of registration can indeed be time consuming.
A savvy buyer can acquire an internationally-registered aircraft swiftly, putting it directly into operation under their new home-registration or by selecting the right off-shore registration that will accept the current aircraft configuration and its new ‘foreign’ ownership.
Under the off-shore registration option, the new owner can legally operate the aircraft before transferring its registration to their home country at the next major maintenance event, or remain on the off-shore registration if desired.
Either option would significantly reduce the burden of downtime for the registration change.
Similar to foreign domiciled businesses in Ireland, Cayman or British Virgin Islands, in some cases corporations may find tax advantages or other efficiencies to make an off-shore registration attractive – but when using this option the counsel of trusted advisors is vital.
If registering the aircraft in its final location means complying with a maintenance program other than the FAA or EASA, then the option to remain on a foreign registry that accepts either FAA or EASA maintenance programs is worth detailed consideration; it is essential to ensure that compliant maintenance is available globally.
Operator-friendly off-shore registries include Aruba, Isle of Man and San Marino, which have offices around the world allowing the aircraft owner to factor the ultimate geographic base of the aircraft into the decision of which registry to use.
The Seller’s Perspective
Although the above points may be pragmatic, buyer preconceptions still exist. Sellers should prepare their aircraft to meet market demand by demonstrating how it is ready to meet a buyer’s needs. As such, aircraft sellers must consider the geographic source of current and future demand for their aircraft in relation to its registry.
Parties to the transaction should understand the technical differences between the current and most likely future registry once the aircraft is sold. Transfer costs could contribute to a value deduction and a lower perceived value by most potential buyers in the market.
The end result should be an understanding of how the market perceives different registries; the varying costs to change between them; and how to best present the aircraft within the market.
Done correctly this understanding will reduce the number of days the airplane is on market before a sale, thereby lowering the seller’s exposure to holding cost and changing market values.
To a motivated seller, this could potentially mean changing the registration to meet the expected market demand. If the seller has the aircraft placed with a registry that uses something other than FAA or EASA maintenance programs, then that alone should be cause for strong consideration of registering the aircraft off-shore (Aruba, for example, accepts both FAA and EASA).
There are many examples where having used one of these registrations in the initial purchase of the aircraft, leaving it on an off-shore registry during the ownership period could have saved time and expense throughout the seller’s ownership cycle.
There are many buyers competing for the right used aircraft. Broadening your understanding of the marketplace and aircraft registrations could make you a real winner.
There are several factors to consider with international transactions, but the well-educated buyer in the right place, at the right time gets the right used jet, at the right price.
Be sure to work with a reputable broker that is client-focused and keeps buyer and seller needs in sight by being well informed with the right connections and experience.