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WORTH THE EXPENSE

Business aircraft transactions can run the full gamut of complexity – from quick and straightforward to extremely complex (or a mixture depending on what the parties or the circumstances dictate). Because the cost of an aircraft is usually a fairly significant expenditure, whether for an individual buyer or a company, it is critical – and makes perfectly good sense – to do everything possible to make sure that the contract is as sound as the aircraft.

AvBuyer   |   1st January 2011
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Worth The Expense?
The Aviation Attorney/Contract Negotiation Consultant.


Business aircraft transactions can run the full gamut of complexity – from quick and straightforward to extremely complex (or a mixture depending on what the parties or the circumstances dictate). Because the cost of an aircraft is usually a fairly significant expenditure, whether for an individual buyer or a company, it is critical – and makes perfectly good sense – to do everything possible to make sure that the contract is as sound as the aircraft.

Who you involve to help with the contracting process, and how they handle that process is very important. It pretty much goes without saying that professionals in any particular industry nearly always prefer to work with other industry professionals. There are a number of good reasons for this, including knowledge of industry terminology and contractual/legal terms of art, transaction process familiarity, personal interest (many consultants and attorneys are private pilots), past/established relationships, and, in general, a shared camaraderie.

Granted, there are a few industry practitioners who have earned a reputation for being tedious, obstreperous or downright ornery, but those individuals are few and far between (and if the truth were to be known, most of us would still rather deal even with those individuals than with attorneys and consultants with no experience in the field.

At least with the known enemy, you usually know pretty much what to expect!). The bottom line is that the deal will come together more quickly, and with fewer headaches, expenses and distractions for all concerned if experienced specialists are engaged.

NOT JUST ANY ATTORNEY
So what’s so bad about using your company’s attorney to handle an aircraft transaction? Let’s use a hypothetical (but close to real) example to help illustrate.

ABC Security, a small, privately-held company experiencing meteoric growth that includes franchises throughout its home country and into neighboring countries, determines that it needs to purchase a small corporate jet. Because of the large number of jets available for purchase in the size and range category ABC seeks, ABC allows its transportation manager – whose current experience is to plan and book charter transportation for ABC’s management personnel – to determine which aircraft to purchase and enter into the transaction.

Let us assume the transportation manager, based on the predominance of the charter travel having occurred using a certain aircraft make and model, confers with management that the same make and model would be acceptable, then undertakes a web- and market media-based search for the ‘best’ aircraft of that make and model – age, hours/cycles, condition, configuration and price considered.

Once he identifies the ‘best’ few candidate aircraft, he contacts the representative(s) for each and negotiates a price and delivery date which meets his company’s needs and expectations. The seller’s aviation attorney proceeds to prepare the Aircraft Sales & Purchase Agreement (ASPA). When the transportation manager receives the ASPA – a very basic, industry standard document – he decides quickly that only an attorney should try to understand and negotiate it.

Because ABC started out small and grew so rapidly, it does not have an in-house attorney. Consequently, the boss calls the company’s retained counsel – a specialist in copyright and patent laws, and franchising. Wanting to please his client, the attorney immediately says, “Sure, I can do this for you…”

Looking back over the deal, the first week of contract discussions was spent familiarizing the buyer’s attorney with basic terms embedded in the ASPA, and convincing him why it was inappropriate to replace many of the terms that worked in his ‘world’ but not in the aviation industry, as well as explaining the inspection and acceptance process – what was allowable and what was not, among other things.

Progress was slow and tedious, with the buyer’s attorney having to ‘research’ many unfamiliar terms and concepts then confirming (or correcting) his understandings. So as to make sure that he had a clear picture, he created a step-by-step list of actions for which each party would be responsible that initially included redundancies and omissions – and required discussions through the second week to work it into an acceptable final form.

Then came a discussion about the timing of the inspection, acceptance and delivery, with the attorney and the transportation manager offering small ‘windows of availability’ for their client(s) to conduct the inspection and acceptance activities for which they were responsible. It’s sometimes hard, as we all know, to get everyone’s schedules in sync, but because an aircraft is held off the market from the time agreement on the basic terms is reached (usually in an Offer Letter or Letter of Intent), time is of the essence in completing the transaction.

In this example – which is unfortunately not far from reality for some transactions – the parties had not completed contract negotiations after two weeks, and the seller was beginning to question his decision to sell in the first place!

MORE HARM THAN GOOD
Ultimately, in most instances, the transaction is successfully completed eventually - but the point to be made from the above example is that sometimes well-intended plans can cause more harm than the good they offer. In this scenario, the cost of using the transportation manager and the patent attorney resulted in a very difficult (if not contentious) and lengthy negotiation, and might have cost ABC the aircraft.

Further, what it possibly could have saved them in the difference between the fee of an aviation professional was likely offset in the fees that would not have been incurred had they engaged an industry-knowledgeable attorney or contracting consultant.

The same sort of challenges can also arise on the technical side of an aircraft purchase transaction, but in most cases, buyers are pretty good about knowing when they don’t have sufficiently knowledgeable people on the payroll and so they hire a technical consultant.

The key seems to be that most people realize that an auto mechanic doesn’t have the skills or knowledge to work on (or inspect) an aircraft, and that even the best limo driver usually won’t know what to do in a cockpit! Why, then, do many people and companies believe that a lawyer is a lawyer, and a contract is a contract?

Experience suggests that when a non-industry attorney is chosen to represent an aircraft buyer, the decision is frequently based - to some degree - on the buyer’s personal comfort with and/or confidence in the attorney or law firm. Those factors are, indeed, important - but, as we all know, personal comfort and confidence can be expensive!

STEP BACK BEFORE SELECTING
A good way to see if your approach is a good one is to take personalities and emotions out of the equation – at least to an extent – by asking friends, business associates, and other trusted people “what did you do?” or “what would you do?” when/if they were in your position – and then listen to their feedback.

Maybe they’ll say they haven’t bought an airplane before, or maybe they’ll give you the benefit of their good – or bad! – experience(s), probably including the names of the good – or bad – attorney or consultant. Alternatively, contact your Business Aviation Association (e.g., the National Business Aviation Association (NBAA); European Business Aviation Association (EBAA); Middle East Business Aviation Association (MEBAA); or Latin American Bu
siness Aviation Association (LABAA), etc. – they will be happy to give you a list of member attorneys or firms, and those attorneys or firms are usually very willing to provide a list of references – some of whom may be people or companies with whom you are familiar.

The bottom line is that a smart buyer, even one without any prior aircraft purchasing experience, will almost always do himself and the seller a great service by engaging an experienced and qualified industry professional to handle the transaction.

The process will be more efficient and effective, the time between agreement on the price and general terms and a final agreement will be quicker, and both you and the seller can focus on completing the inspection and delivery without worrying about what the attorneys are doing or how long they’ll take (or cost!). In addition, the final product will, almost without question, contain every right and protection the parties need.

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