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Closing Aircraft Purchase/Sale Transactions

 

Aircraft Purchase/Sale Transactions

As we get to the end of the year, many aircraft purchasers and sellers are trying to get their deals closed. Whether for tax or other reasons, year end is a busy time for aircraft transactions. Many transactions are closed using escrow agents located in Oklahoma City, Oklahoma (home of the FAA Aircraft Registry). If you have never been involved in an aircraft transaction, you may wonder what happens at an aircraft closing.

In a typical (if such a thing exists) aircraft closing, here are the steps an escrow agent takes to help aircraft sellers and purchasers close a transaction once all of the necessary funds and documents are in escrow:

  • The escrow agent will pay off any liens, mortgages, security interests or other interests held by third parties against the aircraft ("Liens");

  • The escrow agent will disburse to the seller the purchase price, plus any unpaid amounts due from purchaser to seller for flight costs associated with moving the aircraft to the inspection facility or the delivery location, and less one-half of the escrow agent's fee;

  • Once the seller confirms receipt of the funds, the escrow agent (a) dates and files with the FAA releases of any Liens the FAA Aircraft Bill of Sale (FAA Form 8050-2), the Aircraft Registration Application (FAA Form 8050-1) and statement in support (for example, if the purchaser is a limited liability company); and (b) dates and releases the Warranty Bill of Sale and Assignment of Warranties and Other Rights (if applicable) out of escrow to purchaser;

  • Purchaser executes and delivers the delivery receipt to the seller which confirms the aircraft is in the delivery condition and is accepted by the purchaser;

  • If the aircraft is subject to the Capetown Convention, the escrow agent, as purchaser’s professional user entity, registers the sale of the aircraft to the purchaser with the International Registry; and

  • The escrow agent, as the seller’s professional user entity, discharges any registration by seller with the International Registry of any international interest or prospective international interest registered with respect to the aircraft, and consents to the registration of the sale of the aircraft to the purchaser.

The seller and purchaser usually intend that each of these actions is interdependent with each of the others, but that upon completion they are considered to have occurred simultaneously. When all of these steps are completed, the seller delivers physical possession of the aircraft to the purchaser at the closing location.

This closing process may occur via a telephone call with all of the interested parties on the line, or simply after each of the interested parties has provided authorization (usually via e-mail) for the escrow agent to perform these steps and close the transaction. And, of course, depending upon the transaction, these steps may vary. But this is generally how the process occurs.

If you ever have questions or need assistance with an aircraft transaction or closing, I would be happy to help. And in the meantime, Happy New Year.

Greg can be reached at:

Greg Reigel
Shackelford, Bowen, McKinley & Norton, LLP
9201 N. Central Expressway, 4th Floor, Dallas, Texas 75231
Direct: (214) 780-1482 - Fax: (214) 780-1401
E-mail:  greigel@shackelford.law
Website:  www.shackelford.law

Retail Owners: BUY, SELL or HOLD?

As an inventorying-dealer, we are often asked by aircraft owners “Does it pay to make a move now?

The truth is, whenever you buy or sell an asset, there are unavoidable costs associated. Selling a home can be one of the best examples of an expensive transaction with often little monetary value gain. Moving costs, furniture damage, endless time spent cleaning/showing the home, agent commissions often eat up your anticipated fortune. 


An aircraft transaction however, has an overwhelming amount of justified reasons to invest. Whether for business or for personal use, aircraft as we all know are time machines which can also bring value to an owner’s employees, their families, the employee morale at a distant store or a face-to-face meeting with a vendor about an issue.  I would even argue the efficiencies a properly advised owner can create during a transaction can make for large gains in monetary value at times. No, I’m not suggesting you go buy a Falcon 10 and wait for the market to rise, however there ARE opportunities in this current active market, to make smart financial gains in your aviation transaction both for the short-term & long.


Whether it means you are a new private pilot moving up from your first 172 to a faster Cirrus, or whether you are a large corporation looking to sell your Citation XL and get into a large-cabin Falcon, I believe this is a good time to move! With pre-owned aircraft inventories shrinking daily & firming prices, we are already at pre-2008 inventory levels again and first-time buyers are entering the market which we haven’t seen in a decade. Only a couple years ago, we would commonly advise clients the selling would be the tough part, but the buying is easy. Now that is almost opposite in some late-model jet markets where buyers are waiting patiently for months at asking price while the seller tries to locate their new aircraft.


What should you do? Get the advice of a trusted and seasoned professional. If you aren’t already working with a broker or dealer, I recommend starting your search for one at National Aircraft Resale Association From there you’ll have the freedom to rely on your broker’s market intel, along with your good business sense which likely allowed for you to buy an aircraft in the first place. Good hunting and God Bless.


Chris is the Vice President of Meisner Aircraft who has served companies both small and large for over 30 years.  They have built their reputation of providing good sound business advice for clients around the world.  Whether it was a customer purchasing their first single engine aircraft or the larger flight department who needed a company with the experience and expertise to handle a complicated transaction process.  Family owned and operated they have successfully been involved in over $900 million in aircraft sales.  

Does The “As-Is” Language In An Aircraft Purchase Agreement Make A Difference?

It isn’t uncommon in aircraft purchase agreements to see language stating the parties are agreeing that the aircraft is being purchased “as-is” or “as-is, where-is.” Oftentimes the agreement will go on to also say that the seller is not making, nor is the buyer relying upon, any representations or warranties regarding the condition of the aircraft. And it may also specifically state that the buyer is only relying upon its own investigation and evaluation of the aircraft. But what does this really mean?

Well, from the seller’s perspective, the seller wants to sell the aircraft without having to worry that the buyer will claim at a later time that the aircraft has a problem for which the seller is responsible. So, the seller does not want to represent that the aircraft is in any particular condition (e.g. airworthy). When the deal closes, the aircraft is sold to the seller in its existing condition without any promises by the seller about that condition.

Here is an example of how this works: If the first annual inspection of the aircraft after the sale reveals that the aircraft is not in compliance with an airworthiness directive (“AD”) that was applicable to the aircraft at the time of the sale, the buyer could claim that the aircraft was not airworthy at the time of the sale and demand that the seller pay the cost of complying with the AD. But if the purchase agreement has “as is” language, then the chances of the buyer being able to actually force the seller to pay are low.

Not only does this “as-is” language protect the seller, but it also protects other parties involved in the sale transaction such as seller’s aircraft broker. A recent case provides a nice explanation of the legal basis for this result.

Red River Aircraft Leasing, LLC v. Jetbrokers, Inc. involved the sale of a Socata TBM 700 where the aircraft owner/seller was represented by an aircraft broker. The buyer and seller entered into an aircraft purchase agreement that included not only “as-is, where-is” language, but it also provided that the buyer was accepting the aircraft solely based upon buyer’s own investigation of the aircraft.

During the buyer’s pre-purchase inspection of the aircraft, the buyer discovered certain damage to the aircraft. However, the buyer accepted delivery of the aircraft in spite of the damage based upon alleged representations by the broker that the damage was repairable. After closing the buyer learned that certain parts were not repairable. Rather than sue the aircraft seller, presumably because the buyer recognized the legal impact of the “as-is” language in the purchase agreement with the seller, the buyer instead sued the aircraft broker alleging that the broker negligently misrepresented the aircraft.

In order to succeed on a claim of negligent misrepresentation under Texas law (the law applicable to the transaction), the buyer was required to show (1) a representation made by the broker; (2) the representation conveyed false information to buyer; (3) the broker did not exercise reasonable care or competence in obtaining or communicating the information; and (4) the buyer suffers pecuniary loss by justifiably relying on the representation.

In response to the buyer’s claim, the broker argued that the “as-is” language in the purchase agreement waived the buyer’s right to be able to prove that it justifiably relied upon any alleged representations by the broker. The buyer primarily argued that the purchase agreement language did not apply because the broker was not a party to the agreement. But the Court disagreed with the buyer.

The Court found that

the purchase agreement contains clear language evincing Red River's intent to be bound by a pledge to rely solely on its own investigation. And, because it appears that the parties transacted at arm's length and were of relatively equal bargaining power and sophistication, the court concludes that the language in the purchase agreement conclusively negates the reliance element of Red River's negligent misrepresentation claim.

So, even though the broker was not a party to the purchase agreement, the Court still held that the buyer was bound by the statements/obligations to which the buyer agreed in the purchase agreement, even with respect to third-parties. As a result, the Court granted the broker’s summary judgment motion and dismissed the buyer’s claims against it.

Conclusion

“As-is” language will continue to be common in aircraft purchase agreements. Aircraft sellers and those working with them will certainly want to include and enjoy the benefit from this language. Conversely, aircraft buyers need to be aware of the scope and impact of “as-is” disclaimer language in an aircraft purchase agreement. If a buyer is unhappy with the condition of the purchased aircraft, the presence of this language in the purchase agreement will significantly limit the buyer’s remedies and recourse.

What You Should Know About eBay Aircraft Sales

We considered listing this plane for sale on eBay
One of the aircraft we considered listing for sale on eBay

When it comes to making any large purchase, being thoughtful and thorough is of the upmost importance. This is true for homes, cars, and especially for airplanes. An airplane is an investment that will hopefully last you years, and absolutely must keep you safe to the best of its abilities when you fly it.

In general, people are wary of where their large ticket items come from. They like to have a full description of the item that is without any deception or misinformation. Typically it is preferred to have a way to inspect the purchase up close, but with aircraft and other online purchases this may be difficult because it is located far away.

One might be surprised to learn that in a Google search for “Aircraft for Sale,” eBay is one of the top results in the first page. Of course, when you search for any number of things followed by “for sale,” eBay also appears on the first page. They’ve been in the business of connecting sellers to buyers for 22 years now. While some may be quick to discount eBay as an unreliable or sketchy source for aircraft sales, there are certainly pros as well as cons to purchasing through their site.

After consulting a few industry experts, reading online forums, and browsing the selection of aircraft for myself, I have come to the conclusion that you just might find a perfectly good aircraft listed on eBay. However, you may have to proceed with more caution than on specific “aircraft for sale” websites. Let’s break it down into the pros and cons.

Pros and Cons of buying Airplanes of Ebay

For the Buyer

Con:

It may be difficult to inspect

As mentioned earlier, the perfect deal is likely not sitting in your backyard. Aircraft can be list a few states away, and without having the ease of heading over to inspect it up close, you may end up buying it sight unseen. eBay did think of this, and you can hire the people are We Go Look to inspect your purchase for you, typically for less than $100.

https://wegolook.com

Pro:

The bid is non-binding.

When you place a bid on eBay Motors, which includes all of their aircraft listings, the bid is non-binding. This simply means that your bid expresses interest in the airplane, but it is not a binding contract between you and the seller. That can be comforting when you want to get your foot in the door but you would still like to read over all the paperwork associated with the plane before you dive in with a purchase.

http://pages.ebay.com/help/policies/non-binding-bid.html#fineprint

For the Seller:

Con:

It may be expensive to list

The terms and conditions on eBay’s site says that there is an $125 fee on listings that are more than $5000 if you list less than 6 vehicles per calendar year. Additionally, the seller has to pay more to have extra photos, extend the listing for more than 7 days, to have their header in bold, and a few other extra features. These numbers can add up quickly, as compared to other aircraft for sale websites where the first listing is often free, and the following ones are at a steep discount. http://pages.ebay.com/help/sell/motorfees.html#volume

Pro:

Your plane is exposed to a larger audience

Although eBay is not as big as it used to be, it does still have a large following. Some old-school aircraft purchasers still check the site, as is evident by the aircraft buyer forums I browsed. Having extra exposure across multiple buying platforms can help your aircraft get noticed and sold, which is the ultimate goal.

Regardless of if you’re buying or selling, you must have your paperwork in order. Any purchase should still be contingent upon a title search showing clear title and a satisfactory pre-purchase inspection.  If you opt to purchase it without a pre-purchase inspection, you are taking a risk that may not be worth it. Some of the most repeated advice for aircraft purchases is to be patient. It may seem like your dream airplane but being thorough with paperwork and inspections is vital.

Another more practical way to utilize eBay is to purchase aircraft parts. You can find some pretty good deals on old parts that only need a little work to look new. If you look at the storefront for Universal Asset Management, you’ll be able to find authentic, rare parts from decommissioned commercial airliners. I found a Russian “EXIT” sign, a flight recorder, and a parking break panel. They have hundreds more treasures listed on their site that do not carry quite the amount of risk involved with purchasing an entire plane.

http://stores.ebay.com/Universal-Asset-Management/_i.html

One more thing:

You may find some hidden treasures.

During my browsing of the eBay airplane listings, I also happened upon an advertisement for 10 hours PIC of multi-engine time in a Piper PA 30 Twin Comanche. In this case the seller is using eBay as a sort of classifieds, reaching a whole new audience that may be thinking about getting their Multi-engine add-on. This is a clever tactic and could be capitalized on if it isn’t against eBay’s terms and conditions!


We ended up choosing not to sell this plane on eBay

The Aircraft Acquisition Plan - Sources Of Information

In the two previous issues, I discussed that the foundation of the Aircraft Acquisition Plan is to understand the aviation mission. That understanding leads to identifying the key missions of the aviation function. Those most important missions are what allow you to derive a set of objective evaluation parameters. Those mission-specific parameters can include payload, passenger seats, range, runway performance etc.

Given a set of parameters, you will need to find out which aircraft are capable of meeting those parameters. For example, if you are an Emergency Medical Services (EMS) operator, you may need to carry 2 liter patients plus two attendants. You may also need to lift that load from a 3,000 foot elevation on an 86F (30C) day. You know the capabilities of your current EMS helicopter. Where do you get the information about possible replacement helicopters? What about performance on specific trips such as London City airport to Cairo, Egypt? What about the maximum payload you can depart Eagle, Colorado and make Charlotte, North Carolina non-stop? There is generally available data and specific data calculations. 

There are three generally available categories of published sources of information and data. Trade publications, off-the-shelf databases and the manufacturer published data.

Trade Publications. There are a number of excellent publications that publish surveys, list performance reviews/pilot reports, and have new aircraft pricing. These magazines are readily available via subscription. In addition to hard copy, many have electronic copies and some maintain past issues on their website. The cost to receive them is nominal. This is a good first step to get general information. The ones with pilot reports may have more technical information versus general product reviews. These articles may not answer your detailed questions or cover all the aircraft models you are interested in.

Published Databases. There are a number of databases published in the US that can provide a great deal of useful information. They cover four areas: acquisition costs, operating costs, performance and specifications, and specialized data. While trade magazines usually do a good lob of listing new aircraft process, they don't have a lot of information on pre-owned process. Information that is published on acquisition costs relies on sellers or buyers reporting their transactions to the publisher. Not every transaction is reported and there is a time lag in the reporting of a transaction and the ability of a publisher to analyze and publish their data. When markets are changing rapidly, this data has less value than in a stable used market.

Operating cost databases focus on the day-to-day costs of owning and operating aircraft, including taxes and fixed costs such as insurance.  Operating cost databases also have limitations. No two operators operate their aircraft in the exact same way.  Some operators do much of the routine maintenance in-house while others use a service center. Unscheduled maintenance is just that, unscheduled. There is no way to predict unscheduled maintenance save for using generalities and defining assumptions. Guaranteed hourly maintenance programs may help, but each manufacturer or program seller will use different assumptions and many allow for some variability in charging based on utilization. As they say with automobiles, “your mileage may vary.” These databases can be a valuable tools for comparing relative costs, but aircraft costing is not an exact science!

Performance and specification databases are useful provided that the person using them is knowledgeable about aircraft performance.  They go into more detail than many magazine articles and they tend to have standardized formats for each category of aircraft. These generally come in software versions. Unless you buy the flight manuals or subscribe to a database that offers that level of detail, the ability to change the data for your exact mission can be limited. Again, as a relative comparison tool, they can be invaluable. 

Costs of the above databases vary from several hundred dollars to over $1,000 for complete sets. They tend to offer a fair amount of detail, are impartial, and given the time involved in gathering each bit of information on your own, a very worthwhile investment. Our company has published a number of these types of databases for over 30 years.

Other specialized databases do exist. They can be for things such as charter listings, aircraft for sale listings, airport databases, and en route winds and temperature statistics. Depending on your mission, they still may not answer the very specific question that you may have.

Manufacturer's Data. The information from the aircraft manufacturer can range from the sales brochures' optimistic, best case information, to very specific performance analyses. Be cautious reading generalized sales information as they may or may not conform to standardized criteria. They may also be out of date. The flight manuals are the best source for specific calculations. Buying them for one-off comparisons can be quite expensive, especially when researching a number of different aircraft models. 

Detailed performance questions can be easily answered by the manufacturer. Contacting the manufacturer does inform them of your interest and usually generates sales calls and perhaps a visit form your local aircraft sales person.  If you wish to maintain your anonymity, you may wish to order a technical manual through the product support group. 

What are the other sources? Consultants can be paid to do all or part of the work in the Aircraft Acquisition Plan. When we do a study for someone, we work closely with both the aviation professionals and well as the end user to make sure all the right questions are asked, and answered. Other operators can be a wealth of "inside" information, as are maintenance facilities and training companies. When asking questions, be specific. Ask a general question, get a general answer. List price is not necessarily selling price, nor does a flat-rate cost for an inspection tell you what to allow for unscheduled and “over and above” maintenance.  

When gathering data, keep in mind the following:

What is the reliability of the source?

What assumptions went into the data?

How would specific information apply to your situation?

In general, starting with the publicly available data allows you to develop a short-list of candidate aircraft. If you want an aircraft with 2,800 nautical mile (NM) range, an aircraft with 2,300 NM is probably not going to be your top choice. Next time I’ll get into the analysis of the numbers.