You are excited. You have been looking at planes and talking with your broker. The broker has located the perfect plane. Now what?
Letter of Intent
Work on a letter of intent (LOI). You need to agree on price and other major terms before you spend significant time and money on this aircraft. Besides price, other terms to discuss with your broker include, making it a non-binding LOI, the condition the aircraft must be in at the time of closing, amount of deposit and when the deposit becomes non-refundable, are there any limits on your ability to reject the aircraft after the pre-purchase inspection.
Contact a Lender
If you intend to finance your purchase, you should have identified potential lenders and started discussions. The airplane acquisition process moves quickly, credit approvals do not and it is not common to see financing contingency clauses in aircraft purchase agreements.
Visual Inspection & Demo Flight
Schedule a visual inspection. You need to see the aircraft and possibly take a demo flight. A technical advisor needs to do a preliminary review of the logbooks. This helps to determine if you like the aircraft and if the aircraft is in the condition you anticipate.
Hire Experienced Aviation Counsel
Hire an experienced aviation lawyer. The regulatory issues and the FAA’s interpretation of the regulations involving business aircraft are not readily apparently by reading the federal aviation regulations. Make sure your tax advisor is involved. Create a good team and let them work together to produce a great result.
Negotiate the Purchase Agreement Terms
Negotiate and execute the definitive purchase agreement. If you have included most of your significant business points in the LOI, the purchase agreement negotiations will generally be easier.
Work with Your Team
Work with the team you created. Let them know how you plan to use the aircraft and they can talk with you about how this is impacted by the regulations and by federal and state tax laws so you will be aware of the options and can select your best option. Every airplane owner has distinctive goals and a unique tax situation. A basic cookie-cutter plan may not achieve your desired results.
Set Up Your Flight Department
You also need to decide whether you will hire your own flight department or hire a management company to serve as your flight department. Will you want to allow others to use your aircraft or will it be solely used for your business and family?
Decide on your Structure – Dry Lease, Charter, Timeshare
While the pre-purchase inspection occurs you can finalize your structure documents. This may include any dry leases and negotiating any agreements with a management or charter company. There are also closing documents to sign including FAA Registration Applications, LLC Statements in Support and International Registry documentation. If you will be traveling, your availability to sign documents needs to be factored into the time-frame.
Enjoy!
After the closing, your hard work will pay off when you enjoy your aircraft, it satisfies your goals and it is operated in compliance with regulations and pursuant to your tax planning.
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 (mwade@jetstreamlaw.com)
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.
