Plan Ahead for your Next Plane Purchase
We are sharing an article that Michelle Wade first published on Forbes.com titled: Five Mistakes Business Owners Make when Buying A Private Plane.
Planning ahead and avoiding the most common mistakes will eliminate much of the stress of the aircraft acquisition process. Below are five missteps to watch out for in an aircraft acquisition:
- Buying The Wrong Plane For Your Needs
- Not Hiring the Right Professional Advisors at the Outset
- Only Considering Purchase Price and Not Considering Operating Costs
- Waiting Too Long To Search For Financing
- Not Hiring the Right Management for a First Aircraft
Article – Avoid These Mistakes
A business owner considering a private plane acquisition must make several decisions. Through my experience as a private jet lawyer, I’ve seen that through the buying process, mistakes are often made.
Planning and avoiding the most common mistakes will eliminate much of the stress of the acquisition process, whether you’re buying the entire plane, a fractional interest or an interest in a plane shared with others. Below are five missteps to watch out for as you begin the plane-purchasing process:
1. Buying The Wrong Plane For Your Needs
The first mistake business owners make when buying a private plane is shopping before knowing how the business will use the plane. How many passengers will be on board? A plane that is comfortable for two-hour flights might not be suited to six-hour flights. Will the plane also be used for flights with family?
Some business owners only consider the same model plane that an admired business colleague owns, but their plane might not be the best fit for your needs. It’s important to identify how your business will use a private plane before you begin shopping.
2. Not Hiring The Right Professional Advisors At The Outset when Buying a Private Plane
As a business owner, I strongly recommend hiring advisors who represent only your interests. Some of the initial advisors I suggest working with are a broker, technical advisor, aviation lawyer and aviation tax advisor. (Full disclosure: My law firm only practices in the area of corporate jet transactions.)
You can shop for a plane on the internet and obtain plenty of information by calling the listing broker, but an experienced aviation advisor can help you identify what is missing from that information. Private planes are complex equipment, and you do not want to fall for a pretty paint job or a great set of photos without knowing important technical and legal details.
It’s true that you might be able to save money on initial legal and tax advisor fees by following the same aircraft ownership and operating structure as a business colleague. However, if you do not follow an operating plan designed for how you own and operate your aircraft, you risk additional taxes, Federal Aviation Administration civil penalties and additional liability accompanied by the potential for denial of insurance coverage.
Aircraft owner operating structures are based on different facts and different priorities. Some elements may be the same, but keep in mind that your aircraft operation is unique to your business and needs a plan created just for your business.
Even private planes are subject to significant government regulation. Hiring experienced private jet advisors who only represent your interests helps maintain compliance with aviation regulations and minimize taxes. In 2018, the FAA proposed a $3.3 million civil penalty against one company for conducting aircraft operations in violation of the Federal Aviation Regulations and issued a press release publicizing the proposed civil penalty.
Private planes are also an inviting target for every tax authority. State departments of revenue may not issue press releases when pursuing your business for taxes if claims are owed, but the sting of additional taxes and penalties is strong. Your interests are best served by using advisors who focus exclusively on serving your interest as an aircraft owner.
3. Only Considering Purchase Price And Not Considering Operating Costs
The third mistake you might make when buying a private plane is only considering the purchase price. An aircraft’s purchase price is important, however, if you did not realize that the older, less expensive aircraft you purchased for your business trips is costly to maintain, you likely will not enjoy your new business asset.
Before shopping for a plane, review common annual expenses, such as maintenance and repair, insurance, hangaring, operating costs, personnel (pilots) and management fees.
4. Waiting Too Long To Search For Financing For The Plane Purchase
Business owners frequently underestimate how long it will take to search for and secure financing. Identifying which lenders will loan money to your business for the purchase of the plane you want takes time. Reviewing their offer letters takes time. Even after selecting a lender, it can take weeks, not days, to provide all the required information to a lender and for the underwriting committee to approve your loan. It is only then that attorneys begin drafting your loan documents. This can leave little time to review the loan documents and try to negotiate more favorable terms.
Aircraft purchase agreements do not include financing contingency clauses. By waiting too long to secure financing, you risk receiving the loan documents right before your purchase agreement with the seller requires you to close on the purchase.
5. Not Hiring Professional Management For Your First Aircraft
Another mistake business owners make when buying a private plane is not hiring an experienced professional aircraft manager for their first aircraft. Operating an aircraft involves operating a complex machine governed by regulations issued by numerous governmental agencies.
This is why I suggest that during the purchase process, you hire an experienced professional aircraft manager to manage your aircraft operations. Ensure the person you hire is transparent about the service they provide and the costs you pay.
A professional manager can help you achieve use and enjoyment from your business asset. You can decide whether to continue using their service or start your own flight department after experiencing what you like and what you want to change about their service.
Acquiring a private plane requires multiple decisions to be made in a short time frame. But by eliminating common mistakes in the acquisition process, a business owner will have an easier acquisition process and an enjoyable ownership experience.
Please contact Jetstream Aviation Law for legal assistance with your next aircraft acquisition.
The information provided here is not legal advice and does not purport to be a substitute for advice of counsel on any specific matter. For legal advice, you should consult with an attorney concerning your specific situation.
Michelle M. Wade is a Partner with the aviation law firm of Jetstream Aviation Law, P.A. and counsel clients on the acquisition, financing and operation of corporate jets operated under Part 91 and Part 135 of the US Federal Aviation Regulations. Jetstream Aviation Law can be found at www.JetstreamLaw.com. Michelle Wade (email@example.com)