Four Essential Steps for a Successful Aircraft Transaction
Every potential acquisition is an idiosyncratic endeavor, with no two cases exactly alike. Aircraft sales are so multi-faceted and intricate that it’s practically essential to rely on the professional assistance and hard work of private aircraft brokers. Beyond the sale and the delivery of your new jet, there’s a number of important considerations – such as aviation insurance, the transfer of title, the pre-purchase inspection and the dynamics of the market – that go beyond the range of a single professional.
In other words, potential buyers should go into an aircraft acquisition with a qualified team of aviation professionals whom they trust to handle every aspect of the deal. Many high-net-worth individuals run into problems when they attempt to rush the sales process, without spending considerable time to cover all their bases beforehand.
In the world of private aviation, million dollar mistakes are an actual possibility if you or your team are inattentive. For this reason, our team at Freestream has identified four primary aspects of any aviation deal you should address with your aircraft brokers to ensure a successful aircraft acquisition.
Hire an aviation attorney
Many high-net-worth individuals come into an aircraft acquisition with years of experience handling intricate negotiations on a regular basis. You likely already have a real estate or corporate attorney who is capable of tackling many major purchases. It’s important to understand that even the most advanced attorney will likely be ill-equipped to handle the many legal hurdles of aircraft sales unless they specialize in aviation. It’s crucial that you hire an experienced aviation attorney or have your private jet broker recommend one.
An aircraft acquisition is unlike any other type of significant investment. For one, the process for escrow and the transfer of title are distinctive compared to any other industry. While the seller’s attorney will often prepare the first draft of the Purchase Agreement, we highly recommend you enlist the help of your own aviation attorney to go over the terms of the deal. Your attorney will review the Purchase Agreement and set the tempo for the rest of the transaction. Although your private jet broker may have their own standard form, an aviation attorney provides benefits beyond the Purchase Agreement.
By retaining an aviation attorney, you’ll be able to seek their counsel on issues like tax exemption, property taxes, FAA regulations, private charter and compliance with the IRS. An attorney will be able to recommend whether you should hold title in an LLC or in an ownership trust. Your professional aircraft brokers should have a list of seasoned aviation attorneys to help guide you. Trust us – a mistake with the IRS or the FAA quite often exceeds the costs of annual ownership. An aviation attorney is an indispensable asset for accomplishing your legal goals in a cost-effective manner.
Let your aircraft broker guide you to the right plane
In the world of private aviation, it’s a common temptation to go after the biggest, most luxurious corporate jets with all of the latest, cutting-edge amenities. Yet, the majority of aircraft owners retain their private aircraft for an average of 3.5 years because of poor initial selection. It’s often the case that potential buyers overpay for private jets, sometimes as much as 20% above sale price.
A qualified private jet broker will guide you through every step of the transaction process, from the model of the aircraft and the type of equipment to all the operations and maintenance after the aircraft’s delivery.
Because there’s high demand in the market for private jets, there’s often limited availability for certain private planes. This market dynamism often affects price. To avoid overpaying, you have to rely on the knowledge of your private jet broker who will recommend the ideal private aircraft for your travel needs. They’ll also help you distinguish between different private planes. There’s subtle variations amongst different aircraft that elude the untrained eye, such as parts and components, type of avionics, maintenance history and interior quality. A great broker has all the information you need to make an informed decision regarding the best option for your unique requirements.
The Pre-Purchase inspection
The cardinal rule of any successful transaction process is to perform a pre-buy inspection. While the warranty for private planes applies to the title, there is no warranty for the condition of your private aircraft. Once you have had your lawyer vet and approve the Purchase Agreement, the next step is to have an aircraft maintenance facility with intimate knowledge of the private aircraft you’re purchasing to perform an inspection.
If you discover through the course of your inspection that the condition is not as advertised, then you have the right to pull out of the sale and have your deposit refunded. The pre-purchase inspection will take place at a maintenance facility agreed upon by both parties. It’s essential that you find out the real condition of your private aircraft, the maintenance state of the plane and all its parts and whether the records are all in order.
At the end of your inspection, the maintenance facility will hand over a list of what they found and will indicate whether anything needs to be replaced. While most sellers will repair any deficiencies out of their own pocket, there is the possibility that it will require some negotiation over what constitutes airworthiness. The possibility of arbitration is yet another reason why you should consider retaining a team of private jet broker or experienced mechanics – either one of them will be able to handle the considerable level of detail inevitably involved in such a negotiation.
Do your homework on aircraft insurance
With the endgame of the transaction in sight, it’s important to do your research on your insurance agreement before you sign the dotted line. While aircraft safety has improved vastly over the years, you never want to leave yourself exposed to any risk. You should have some sense of what you’re going to be paying for an insurance plan before you close on the deal.
Emergencies can happen in the world of private aviation. So you want to have a policy that shields you from liability and from any damage to your private aircraft. While a liability policy will safeguard you from any third party lawsuits for negligence, hull coverage will hedge you from any damage to the aircraft. You also want to ensure that your pilots meet the obligations of your insurance plan in the event the insurance company must pay out a claim.
Because flying mishaps are costly, it’s important that you understand your policy to avoid a denied claim. You should review your insurance policy at least once a year and you ought to feel confident that your private jet broker understands the terms of the agreement. As with the model of your private aircraft, you want to purchase just the right amount of insurance, neither too much nor too little.
Conclusion
The good news is that when you surround yourself with the right people, accomplishing the above steps is an effortless activity. Luckily, as a full-service aircraft management company, Freestream advises on every aspect of aircraft acquisition, from the terms of the purchase agreement to maintenance reviews and aviation insurance. We have robust, decades-long relationships with every major aircraft manufacturer in the United States to guarantee the most optimal purchase price for our clientele.
Our worldwide network of service providers allows us to address all the unique requirements of our clientele and to focus on every small detail of the aircraft acquisition. No matter your business purpose, Freestream has a long legacy of excellence when it comes to servicing clients according to the highest of standards.
