You have settled on a price, and both sides want to close quickly on a used aircraft transaction. What is left to discuss? More key business points than decision makers may initially realize. The terms of used aircraft transactions can vary widely, and there is no one size fits all approach. However, there are a few main business points that are applicable to most transactions that should be discussed in detail: aircraft inspection, rejection rights (or lack thereof), and logistics.
Inspecting the Aircraft in Used Aircraft Transactions
Generally there are no warranties regarding aircraft condition that survive closing in a used aircraft transaction, so buyers often want to do some form of inspection to verify condition. There are many factors that go into determining the scope of the inspection, but from a buyer perspective, the aim is to arrive at a point where the buyer is comfortable with the condition of the aircraft. To get to that point the buyer needs to understand the potential condition risks associated with the specific aircraft, the extent to which the selected inspection will mitigate those risks, and the remaining risks it is assuming. What, if any, discrepancies the seller is willing to correct at seller’s cost, in addition to the scope of the inspection, are key factors in evaluating the risk.
Rejection Rights in Used Aircraft Transactions
Buyers generally want the ability to reject the aircraft and terminate the deal for any reason, and want to push that decision point as close as possible to closing. On the other side, sellers generally want to lock a buyer in with no right to reject, or only a minimal right to reject, upon execution of the purchase agreement. While these options are generally described as a “soft deal” versus a “hard deal,” there can be a lot of nuance in the terms. Decision makers need to understand both the timing and scope of any rejection rights, which affects the risk being assumed by both sides.
Logistics
There can be multiple potential movements of the aircraft prior to closing, each of which may need to be coordinated with the parties to the transaction, crewmembers, and third parties. Decisions regarding the location of the inspection and the location of closing will be the main drivers of repositioning flights, but the parties may also need to consider how and when a test flight is included in the schedule. Buyers generally would prefer to have some type of flight after the inspection and correction of any discrepancies as a final check to confirm all discrepancies have been corrected, while sellers would often prefer to avoid this flight (unless required for return to service).
Documentation is Key
Cleary documenting the business deal in the form of a purchase agreement will greatly reduce the potential for disagreements as the transaction proceeds forward. The process of drafting and negotiating the purchase agreement is also often a great tool for confirming that the parties have actually agreed upon the key business terms.
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.
Please contact Jetstream Aviation Law if we can assist you with addressing your aviation issues.
Lori N. McGee 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.
