What Should you Know About Escrow in Aviation?

A secure, efficient aircraft transaction is always the objective. Escrow Agents can effectively mitigate risk involved, acting as neutral, secure third parties - but there are details still to consider in protecting transactions.

AvBuyer  |  08th October 2018
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The AvBuyer editorial team includes Matt Harris and Rebecca Applegarth who contribute to a number of...

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Escrow in Aviation

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Buying an aircraft is one of life’s great milestones. For all interested parties, a secure and efficient transaction is the objective. Escrow Agents can effectively mitigate the risk involved, acting as neutral, knowledgeable, and secure third parties to manage the required documentation and funds in any aircraft sales transaction. 

The Escrow process faces some challenges in protecting each side of the transaction, and the Escrow Agent/Company itself. Issues can arise from lack of information, clarity, planning, and awareness. With that in mind, following are six details to consider in protecting any aircraft transaction:
  1. The Know Your Customer (KYC) requirements are important to all, regardless of the jurisdiction and in particular in the United States as a result of the Patriot Act. Completing the necessary disclosure form at the very start of the transaction will help to protect all parties to the transaction.  Identifying, verifying, and understanding a client and their financial history cannot be overlooked; filing the necessary document at the beginning can expedite the Escrow process. The financial institutions, not to mention the respective government and law enforcement agencies take the origin of the funds very seriously.

  2. A lack of clarity in the closing process can be a huge hindrance. The order of deregistration (if a cross-border sale), releasing of forms and documents to convey title is sometimes misunderstood by either the seller or buyer. It is very important to list the exact order of what is expected to close the transaction in the Aircraft Purchase Agreement (APA).

  3. Confidentiality is very important to a transaction.  The escrow agent should only be speaking with the parties involved in the transaction.  These parties are often listed in the purchase agreement, and can also include brokers and dealers with a commission agreement.  Escrow Agents should NOT be talking about the details of the transaction to any uninvolved parties.  These unauthorized parties can include - but not be limited to - the Press, friends, family members, or any other curious but uninvolved parties. 

  4. The International Registry (IR) plays a significant part in the timeliness of the closing. What originally started as seven parties to the treaty has grown to 70, thus it is more likely than not you will find you need to make use of the IR.  Especially if any financing is involved.  It is best practice to find out early on if the parties are registered users, and to make decisions regarding the filing of the sale. Accounts should be set up well in advance; if one year has passed since the seller has registered with the IR, re-registration is necessary. It is a simple step but if left to the last minute can add 2-3 days to the closing process.

  5. Confirming the details of the funds transfer is a must. It is necessary for the actual seller of the aircraft to be available on or before the closing of the transaction to do so. Obtaining written confirmation as well as verbal confirmation is a good practice for the Escrow Agent in light of the increase of cyber crime.

  6. The aviation community has many problems with email fraud that all parties need to be aware of. Email phishing, or emails disguised as legitimate in an attempt to redirect funds, is very common and can cause some serious problems in a transaction. It can happen to anyone; if something seems unusual, be very careful and inform the necessary establishments. Hence, the emphasis on a verbal confirmation and identification of the benefiary of funds that are to be transferred at closing.
A protected financial transaction is the objective, but the Escrow Company can only meet it by protecting itself as well. Repeatedly identifying, clarifying and confirming the many details of an aircraft transaction can help in this regard, and in efficiently meeting the many legal and bureaucratic requirements.
 Wright Brothers Aircraft Title

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