Buying your first aircraft is exciting, but it can also feel overwhelming. The good news is that most aircraft purchases follow a fairly predictable process. With the right team and a realistic timeline, you can avoid costly surprises and move from “shopping” to “closing” with confidence.
Hire Your Aviation Acquisition Team Early
Even if you’re a capable negotiator, aircraft transactions involve technical, regulatory, and tax issues that most first-time buyers haven’t encountered before. Consider assembling an experienced team early.
Consider hiring an aviation broker to assist you. A good aviation broker brings value by saving you money and time. Even if you don’t hire a broker to represent you, a buyer needs a technical advisor who can evaluate the aircraft and its records. Also consider hiring an aviation tax advisor to help identify a tax-friendly delivery location and advise on the tax aspects of the ownership and operational structure. An aviation lawyer can help with the purchase agreement and advise on the FAA regulatory aspects of the ownership and operational structure. Experienced advisors save you time and money.
Start early and allow enough time for the process. Aircraft buyer’s generally do not benefit from attempting shortcuts. Professional aviation advisors will let you know the process that benefits you and a reasonable timeframe for that process.
Start Planning: Key Initial Questions
Even before you make an offer on a plane, start discussing topics such as
- What is your aviation budget – both for the purchase and for the annual operating expenses
- Where is a pre-purchase inspection slot available
- What dates are pre-purchase inspection slots available
- Delivery locations at or near the pre-purchase inspection facility that are in sales-tax friendly jurisdictions
- Tax consequences at potential delivery locations
- Whether you will place the aircraft on a charter certificate
- Where to base the aircraft
- What entity will own the aircraft and what entities will operate the aircraft. FAA regulations do not allow a sole purpose entity (also known as a flight department company) to operate the aircraft
- Tax consequences in the state where the aircraft will be based and also where it will spend significant time
- Tax consequences of any anticipated personal use
- How your business and personal goals for the aircraft interact with FAA regulatory requirements and tax rules.
Coordinate the Planning
This planning must be coordinated among your aviation advisors. Siloing the tax advice so that they are not providing information to your aviation attorney or broker will not save money because more time will be spent later making changes because everyone didn’t know the required information.
Determine What Aircraft to Buy
Determine the make and model of the aircraft which best suit your needs. You can determine your needs based on
- Typical routes and distances you fly
- How many passengers are generally on board
- What type of luggage you take
- Range and performance requirements
A broker or technical advisor can be valuable in helping you compare options to help you avoid buying an aircraft that looks great online but doesn’t fit your mission, goals or needs.
No Financing Contingencies In Aviation
If financing is necessary for you to purchase a plane, identify possible aviation lenders, learn their requirements and be ready to quickly provide all relevant information as soon as you identify an aircraft. There are typically no financing contingencies in aviation.
Offers and Visual Inspections
Make a written offer. A letter of intent, can be short or long, but consider including all of your “deal points”. Don’t leave the most important point until the end and only then learn that the buyer and seller each refuse to compromise their position on the important point.
Perform a visual inspection of the plane and have your broker/technical advisor review the records.
Purchase Agreement
The next major step is to negotiate and enter into a purchase agreement.
An aviation purchase agreement will address the acquisition process, including:
- Location of the pre-purchase inspection
- Starting date of the pre-purchase inspection
- Whether your deposit becomes non-refundable upon signing the purchase agreement or after buyer technically accepts the aircraft after receiving the results of the pre-purchase inspection
- What rejection rights does a buyer have
- Delivery location – agree to this after consulting with a tax advisor
Do you really want to forego a pre-purchase inspection so you can close quickly and take a personal flight? Pre-owned aircraft are generally sold As-Is, without any warranties as to physical condition. Skipping a pre-purchase inspection to close quickly can be a very expensive mistake. Your tax advisor may also let you know that the personal flight you want to take may not fit your tax planning to obtain bonus depreciation.
Continue to Work Toward Closing
After you sign the purchase agreement and the pre-purchase inspection begins, don’t be lulled into complacency.
- Work on aircraft any dry leases,
- Finalize your tax planning
- Finalize your financing
- Obtain insurance
- Negotiate any hangar agreement
- Negotiate agreements with your management/charter company
Make sure everyone who needs to sign a closing documents is available to sign and will not be in a remote location with no internet and no Fed Ex access.
Closing
After your hard work during the acquisition process, you should be ready for closing. Some people love the adrenaline rush of addressing last-minute problems, but others believe that a good closing is a boring closing.
Enjoy Your Jet
Enjoy using your plane!
Michelle M. Wade is 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.
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.