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LIGHT JETS MIDSIZE JETS HEAVY JETS VIP AIRLINERS EJS not only assists its clients in regards to securing the best deal for the best aircraft, but also in receiving expert assistance and handling all aircraft acquisition and ownership related issue such as market search, cost calculation, contract negotiation, interior definition, pre-delivery inspection, supervision of test flights, arranging management and crew, delivery procedure, creation of a Special Purpose Company (SPC) and lastly, aircraft registration. An aircraft acquisition can be complicated, both legally and financially. There are a lot of pitfalls for the unwary, and time, trouble and money can be saved by obtaining good advice. 1. Research If the client does not already know what type of aircraft they are after, EJS will indentify all suitable aircraft available along with the primary operational cost calculation. From here a shortlist will be drawn up, based upon the buyer’s basic criteria and we will go on to provide a recommendation based on pricing and terms. These include: total time, year, equipment, engine times, inspection status, damage history, paint/interior, ownership history and maintenance history. 2. Letter of intent Once an aircraft has been chosen the next step is to draft a Letter of Intent (LOI). The LOI is an overview that details the expectations and direction of the transaction from the buyer and seller. The LOI is generally non-binding, but is nevertheless an important document. The LOI will cover: the description of what is being purchased - make, model, serial numbers, configuration, maintenance status and presumed condition; purchase price; deposit details – where the deposit will be held, the return conditions or forfeiture and who is responsible for the escrow agent’s fee; pre-purchase aircraft inspection regime details and allocation of costs and acceptance criteria – inspection facility details, the scope of the inspection, test flights, timing, payment details for inspection and transport of aircraft to the inspection facility and details of the parties’ rights and obligations after a successful or unsuccessful inspection and an agreement to negotiate and enter into a definitive Purchase Agreement within a short timeframe. 3. Aircraft Purchase Agreement The next stage in the process is the drafting and execution of an Aircraft Purchase Agreement (APA). This document serves to detail such items as the aircraft purchase terms, establishes the pre-closing process, states the timeframe for the transaction and binds both parties to the deal. It is sometimes the case that the APA will contradict the LOI. If this happens then further negotiations become necessary. A finalized APA will clearly state the rights and responsibilities of both parties at each stage of the transaction process, thus minimizing the chance of conflict. Of particular importance is the pre-closing obligation details, as this is often an area that suffers from minor oversights that can cause delay, such as failing to register with the International Registry. 4. Inspection The inspection of the aircraft usually begins at the LOI stage and is generally executed through a two-stage process. The first inspection is a document review and aircraft ground inspection. This involves minimal aircraft downtime and aims to ensure that the aircraft is the make and model advertised, has the right equipment and that the records are confirmed as being complete and correct with the damage history fully disclosed. The buyer may use this stage to inspect the interior and decide if a refurbishment is required. If the buyer is satisfied with the results of the first inspection they can move onto the second, which constitutes a much deeper process and determines that the aircraft meets the detailed physical standards stated in the APA. The second inspection demands a great investment for the buyer (the inspection facility will charge around $50,000) and a greater risk for the seller, as it requires longer aircraft downtime and the risk of finding a discrepancy. In the event of a discrepancy being identified, EJS’s staff will act as on-site representatives. The signed APA will define the scope of the inspection, the applicable deadlines and the delivery condition agreed upon. We will ensure that your adviser understands the language describing what constitutes a deviation or discrepancy from the agreed upon delivery condition. If a disagreement as to the responsibility for rectifying any discrepancy arises, EJS will consult and provide counsel. We will also make it clear that the inspection report belongs to the buyer and cannot be released to future buyers by the seller without your consent. 5. Pre-Closing Once the APA is signed, there are three broad pre-closing activities. These are: delivery matters, management planning and preparation for post-closing operations. The APA should detail the buyer's pre-closing delivery obligations, which include: pre-positioning documents for filing with civil aviation authorities; registration with the International Registry as a Transacting User Entity (TUE); performing lien searches and finalizing financing and possible prefunding of the purchase price with the escrow agent Prior to closing it is advised that the buyer has a tax and personal property tax planning strategy in place to avoid any complications from authorities, in which the aircraft is delivered or hangared – or both. This will also allow the buyer to take full advantage of any deductible aircraft expenses and depreciation opportunities. The buyer will also need a post-closing ownership and operation structure in the form of an aircraft management team which will be tasked with the running of insurance, an aircraft maintenance program and a hanger facility. 6. Closing Geography dictates that most closings are in fact ‘virtual closings’. Aircraft title and lien documents must be recorded, mostly in original form. Other filings can take place electronically with the International Registry. The closing event consists of the release of documents and release of the purchase price payment by the escrow agent to the seller, along with the formal delivery of the aircraft to the buyer’s representative. 7. Post-closing At this stage the buyer will need to collect all of the documents together, ensuring that the temporary registration (otherwise known as the ‘pink slip’) is on the aircraft together with a copy of any lease, and will have to apply for the authority to engage in international operations, which is prohibited on a temporary registration. If all of the protocols outlined are followed diligently, the process of acquiring an aircraft can be completed on the buyer’s terms and to the buyer’s satisfaction with the minimum of conflict and wasted time and resources. |
