You are a buyer searching for the right aircraft, you have finally found it, and you are calling your broker to get that standard form offer or letter of intent (LOI) sent out with your offer price. Perhaps you are a seller waiting months for a legitimate buyer to show up, an offer letter sits in your inbox, and you cannot find a pen fast enough. You are only focused on the price now, and everything else will surely fall into place…just as long as you get that signed LOI.
Buyers and sellers have different motivations, timeframes and expectations, all of which need to be anticipated to have a successful completed transaction. The result of failing to understand the current paradigm? Deals fall apart, both parties claim the deposit, aircraft are left mid-inspection without payment, liens are filed, and everyone has a costly mess to clean up.
Consider the Important Terms
To prevent this from happening, take a little extra time before you send or accept that LOI. The LOI is not just a formality. You must look further than the price before signing. If your important delivery condition is not in the LOI, that issue may not be easily worked out in the purchase agreement.
While a buyer may consider anything less than a full phase 1-5 inspection to be a deal-breaker, the buyer fails to address this in the LOI and wonders why, after 2 weeks of negotiations, the parties cannot agree on the terms of the purchase agreement. A broker eager for his client to accept that LOI now has an unhappy client who has spent considerable time and money negotiating for a transaction which, it turns out, was doomed from the start.
The LOI is an Opportunity
The next time you are drafting or reviewing an LOI, consider this: It is an Opportunity. You can create a better overall deal at less cost by ensuring the LOI addresses your most important business points in the way you will want them addressed in the purchase agreement. Aviation lawyers negotiating purchase agreements hear “that is how it was written and agreed to by the parties in the LOI” and must notify their client that the LOI he/she signed reads exactly as the other side claims. Taking the time to address your most important points in the LOI creates fewer surprises and fewer costly delays later. Take a deep breath, read carefully, and whether you are buying or selling, think about your most significant points, not just the price.
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 (firstname.lastname@example.org)