Why does a Buyer want to Invest Money in the Seller’s Aircraft?
If a buyer wants to spend its money to perform maintenance work or cosmetic upgrades to an aircraft prior to the closing on the sale/purchase, ask why the buyer doesn’t want to wait until the Buyer owns the aircraft. A buyer may want to avoid future downtime, but both parties need to be aware of the risks when a buyer, who doesn’t own the aircraft, spends money to have work done prior to owning the aircraft.
Risks for the Seller
The seller may want to require that the buyer pre-pay for any work to be done. A seller may also want the inspection facility to clarify that the work will not interfere with or delay the pre-buy inspection, repair of discrepancies or the anticipated closing date. A seller may want to know that the buyer has technically accepted the aircraft prior to allowing work to be performed. The parties need to address who pays for any discrepancies that are uncovered during the additional work which were not identified during the pre-purchase inspection. What happens if either the seller or the buyer defaults? Who pays for repairs if there is damage to the aircraft due to the additional work? The seller may not want the buyer to have any right to the seller’s insurance proceeds if there is any damage due to the additional work.
Risks for the Buyer
The buyer may want to save time later, but it can be risky to pay for work on an aircraft which the buyer does not yet own. The buyer has a risk that it pre-pays for the work, but the seller later defaults and buyer is not reimbursed for this expense. After the buyer has provided its technical acceptance, if the work uncovers additional discrepancies, the buyer may not want to proceed with the purchase if the discrepancies are significant and seller is not required to repair them. If the aircraft is damaged by the additional work, the closing may be delayed while repairs are made, which may defeat the buyer’s time-saving goal.
Document the Agreement
Whatever the parties agree upon, make sure it is documented and then follow-up to confirm that both parties are performing their obligations in connection with any pre-closing work performed on the aircraft.
Please contact Jetstream Aviation Law for legal assistance with the sale and purchase of business aircraft.
Michelle M. Wade is a partner with the law firm of Jetstream Aviation Law and counsels clients on the acquisition, financing and operation of corporate jets operated under Part 91 and Part 135 of the Federal Aviation Regulations. Jetstream Aviation Law can be found at www.JetstreamLaw.com.