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When Bad Things Happen to Good Aircraft Buyers

by Greg Reigel 1. November 2004 00:00
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Recognizing And Avoiding Aircraft Title Problems

Whether you are purchasing your first aircraft or the latest in a succession of aircraft, as an aircraft buyer you need to proceed with caution. If you don't, after the seller has left with your money, you may have unanswered questions: Do I really own the aircraft? Have I missed any skeletons hiding in the closet that threaten my continued ownership and possession of my aircraft? What happens when someone else claims they own or have a prior interest in my aircraft?

To answer these questions, first we need to discuss what the FAA requires for an aircraft purchase transaction. Then we will talk about some of the problems/issues that an unwary buyer could face. Finally, we will address some of the steps an aircraft buyer can take to ensure that he or she will be the legitimate and undisputed owner of the aircraft being purchased.

Recording Purchase Transactions With The FAA. When you purchase an aircraft, you receive an FAA Form 8050-2, Aircraft Bill of Sale showing the transfer/sale of the aircraft from the seller to you, the aircraft buyer. The bill of sale must then be recorded with the FAA along with an FAA Form 8050-1, Aircraft Registration Application. (Unfortunately, Form 8050-1 is not available online, but must be obtained directly from the FAA or your local FSDO). Additionally, for the most part, all interests in aircraft, whether a security interest, lien, mortgage or judgment, must also be recorded with the FAA Registry in Oklahoma City in order to be valid and the first recorded interest usually has priority over interests recorded at a later date.

Failure to timely and properly comply with these filing and recording requirements can result in problems for the aircraft buyer. What types of problems can happen? Although a variety of such problems exist, two specific ways in which an aircraft buyer can find himself or herself in trouble are when a seller fails to convey title to the buyer or when a seller fails to convey "clear" title to the buyer.

Seller Fails To Convey Title. In this situation, the aircraft buyer does not become the actual owner of the aircraft. The seller may not necessarily intend for the aircraft buyer not to take title to the aircraft. Rather, the seller's failure to convey title to the aircraft buyer is inadvertent or unknowing. One such situation occurs when the bill of sale contains errors. Potential errors can include when the person signing the bill of sale does not have authority to sign on behalf of the corporation or limited liability company that owns the aircraft, when the aircraft is incorrectly identified on the bill of sale or when the person signing the bill of sale does not have capacity (e.g. a person signing the bill of sale is a minor, mentally insane or incompetent).

Unfortunately, situations also arise in which the seller's actions are intentional and result in the aircraft buyer not receiving title to the aircraft. This can happen when a seller sells an aircraft twice and the second buyer actually records his or her bill of sale before the first buyer. A similar result occurs if the seller forges the bill of sale or if the aircraft is subject to judicial proceedings (such as bankruptcy, receivership, probate, conservatorship or dissolution of marriage), and the court has not authorized the sale.

Seller Is Unable To Convey Clear Title. In this situation, the bill of sale may be valid and convey title to the aircraft to the aircraft buyer, but that aircraft may be subject to the interests of some other third-party. Such prior interests can include judgment liens, tax liens, mechanic's liens and various other liens and security interests. These prior interests would likely be recorded before the buyer's bill of sale. It is also possible, in some limited circumstances, to have an unrecorded, possessory lien against an aircraft. (Unrecorded, possessory liens make a strong case against purchasing an aircraft sight unseen without confirming the location of the aircraft and lack of claims by the party in possession if other than the aircraft seller).

What To Do? With such potential problems lurking in the shadows, what can/should an aircraft buyer do? Well, one answer is to hire an aviation attorney to assist you with the transaction. An aviation attorney will be familiar with the filing and recording requirements of the FAA and will make sure that the bill of sale and aircraft registration application are completed accurately, properly and filed in a timely manner. An aviation attorney will also be able to perform due diligence on your behalf including a title search and name searches for the seller to discover any judgments, liens, bankruptcies or security interests. He or she can also help you resolve any title defects that may be discovered during due diligence.

An aviation attorney may further help you obtain an affidavit from the seller affirmatively stating that the seller is not aware of any judgments, liens or encumbrances affecting the title to the aircraft. This may assist you in pursuing or asserting a fraud claim against the seller if a title issue arises which you can show the seller was aware of when the affidavit was signed.

Another way to protect yourself is to buy title insurance for your aircraft. The aircraft title insurer will ensure your documentation is accurate and filed in a timely manner and it will also perform the same types of title and name searches an aviation attorney would perform on your behalf. However, the title insurer may or may not be able to assist you in resolving any title defects and won't be able to provide you with any legal advice regarding the purchase transaction.

The bottom line is that you as an aircraft buyer need to proceed with caution and perform due diligence when purchasing an aircraft. Although this may seem like added cost in the short term, in the long run these steps can save you the large expense, and possible loss of your aircraft, that can result from title defects or third-party claims against your aircraft.

As always, fly safe and, when you are purchasing an aircraft, buy smart.

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Greg Reigel

Reducing Your Aviation Costs

by David Wyndham 1. November 2004 00:00
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It is nearing the end of the year, and for business and commercial operators, you know what that means! No, not updating your fantasy football team, it means budgeting for next year! While the overall economy is turning around and many companies are doing better financially, there is still a lot of pressure (and with good reason) to keep costs under control. Here are a few ideas.

First off, you can't control what you can't measure. How do you track your costs? We've worked with operators who only have a few categories of costs. They typically find it hard to manage their costs effectively with a few large-dollar categories. Those we've helped set up with more detailed accounts find it easier to manage and control their costs as they have the detail needed to understand their costs. Once you know where your dollars are flowing, then you can begin to examine ways to reduce those costs.

I'll hit the easy one first. Fuel. Even though when adjusted for inflation, fuel is still a relative bargain, it amounts to somewhere around half of your variable operating cost. Work with your FBO's to arrange for fuel discounts. If you don't ask for a discount, you won't get one! Shop around for prices and take advantage of fuel discount programs when they make sense for your operation. Even five cents per gallon savings will add up.

If you can get a good price at home, tankering fuel is an option. Be careful and do your home work. Carrying extra fuel increases your weight. At a higher weight, it takes longer to climb to your cruise altitude and requires higher fuel burns at altitude. Thus, your average fuel consumption will increase. As an example, tankering an extra 1,000 pounds of fuel in a mid-size business jet will consume about 250 pounds more fuel for a three-hour trip. Make sure the cost saved exceeds the cost of carrying the extra fuel.

Flying at reduced power settings and selecting fuel efficient altitudes will also reduce the amount of fuel consumed. Get out the old performance charts and run a few different calculations. You may find a reduced power setting adds only a few minutes per trip but consumes far less fuel.

Reduce the amount of deadhead, or unoccupied trips. Combine trips when able. This may mean opening up the business aircraft to more than just the top executives. If it doesn't affect your mission, the savings can be significant.

Maintenance is the other area where the aviation manager has the most influence. What is your maintenance concept? Is the aircraft maintenance done during the same work day as when the passengers need the aircraft? If the work week is Monday through Friday from 8 AM to 6 PM, is that when you also work on the aircraft? If you maintain the aircraft on the same schedule as when your passengers need to fly, you are wasting money! Your passengers don't stop traveling while the aircraft is in the shop. They charter or fly the airlines. If you maintain the aircraft during the hours when it is not needed to fly (like nights and weekends), then availability is increased and you spend less money on outside travel.

What sort of maintenance plan is the aircraft on? Many aircraft have progressive maintenance plans available. Rather than putting the aircraft into maintenance for a 120 labor-hour inspection every six months, that same inspection is broken into fifteen 8-hour blocks and accomplished during that same six month period. Do this on nights and weekends when the aircraft is not needed for flight. You are increasing availability thus enabling more hours to be flown without increasing the fleet or using outside transportation resources. Progressive maintenance isn't for everyone, but unless the aircraft is on the road for weeks at a time, it may be worth evaluating.

Evaluate how you do your repairs and overhauls. Using loaner parts while yours are repaired may be less costly than exchanging for new. As you get your own part returned, you'll know the history of that part.

Inventory management. We had one client who had hundreds of thousands of dollars in spare parts for an aircraft they no longer owned! Even at fifty cents on the dollar in liquidation, that was a lot of extra cash lying around doing nothing. As a rule, inventory will cost 15% to 25% of its value in carrying costs - storage, insurance, loss, etc. How much inventory do you really need for your aircraft? What are your most frequently replaced parts? How good is the manufacturer's AOG dispatch? Careful management of your inventory can save thousands.

Also speaking of spare parts, what about warranty? On a new aircraft, we all keep very careful track of what repairs are in warranty. But even older aircraft have many new parts installed. Those parts typically carry some sort of warranty. Tracking their ages/hours/cycles can result in savings should they need replacement.

Replace your aircraft with a newer one. OK, I know we are talking of saving money so how can getting a new aircraft save money? If the newer aircraft requires a lot less time in maintenance than your current one, then you (a) save in maintenance costs and (b) get increased utilization due to increased availability. We did a study for a fleet operator and we showed that replacing their five old aircraft with three new ones not only gave them MORE availability and more capability, it cost less to do so. This can be a tough sell, so you'd better have your reliability and availability data together, plus do your homework on costs before even bringing it up.

Notice I haven't mentioned cutting salaries or reducing staffing. This should be done as a last resort (just short of closing the doors) and requires a lot more space and time than this short article allows. Your staffing should be matched to your mission and provided the mission doesn't change, the staffing shouldn't.

Saving money requires a team effort. The flight crew, maintenance, staff and yes, management, must all agree on the benefits and must all share the responsibility. It is best to be proactive and have a plan. Communicate your objectives with your team and monitor your costs along the way. Effectively managing your aviation costs can have a big benefit – job security!

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David Wyndham


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