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Management: Don’t Rush Aircraft Transactions

Buyers, sellers and other parties must not be tempted to cut corners when completing aircraft transactions, even in today’s very active market for business aircraft.

From reviewing the aircraft’s history and documentation, to securing the necessary regulatory approvals and conducting a thorough inspection, many steps must be completed and documented before the time comes to transfer ownership.

Missed steps and errors are much more common when buyers are concerned the seller might move on to other parties if they ask for too much.

“Everyone is anxious when preparing for closing. There’s a lot of pressure, and between all the parties involved, there’s great potential for complications.”

Jeffrey Towers General Counsel for Aircraft, TVPX

“Everyone is anxious when preparing for closing,” said Jeffrey Towers, general counsel for aircraft at TVPX and past chair of the NBAA Tax Committee. “There’s a lot of pressure, and between all the parties involved, there’s great potential for complications.”

Josh Mesinger, vice president for Mesinger Jet Sales, noted the documentation requirements may also vary greatly depending on the nature of the sale.

“There can be some cleanup involved with domestic transactions, like verifying all the names are correct and spelled identically on every document, but surprises really aren’t that common when you work with a good broker, title or escrow company,” he said.

“International sales can be a lot more challenging, especially in the current frenzy,” noted Mesinger. Such international transactions typically require separate counsel in all the countries involved, Mesinger continued, each versed in specific rules and requirements that can vary greatly across borders.

“In our COVID times, travel restrictions may also prohibit seeing or moving the airplane or securing the necessary documentation from the respective agencies in a timely manner,” Mesinger continued. That includes ensuring the aircraft and any associated items, including engines, are free of all liens and encumbrances.

“The FAA won’t cancel a registration before all consensual liens on record with the agency have been satisfied,” noted Scott McCreary, aviation group leader for McAfee & Taft, “but that’s not necessarily the case with aircraft being imported from outside the U.S. Deals can unravel when such items are discovered.”

While buyers, sellers and their representatives understandably wish to complete transactions in a prompt manner, all parties would be well-served by sticking to a thorough sales process to ensure critical steps do not get missed.

“A good broker, title company or escrow agent, experienced in aviation matters, can really help drive a transaction and help close it smoothly,” McCreary said. “We’re seeing lawyers and advisors in the current environment who may not regularly handle aircraft matters and who may not know all that is needed.”

“Expectations must be set,” Towers added. “With so many parties involved in an aircraft transaction, someone needs to know when to raise their hand and say, ‘You need [to do] this now.’ You need a good quarterback, or else you’ll quickly run into a stiff defense.”

And while price and “fear of missing out” are top concerns for aircraft buyers in the current market, buying the wrong aircraft, and/or not performing thorough due diligence, can result in costly mistakes.

Mesinger recalled a favorite cautionary aphorism from businessman and motivational speaker Zig Ziglar: “Price is a one-time thing, and cost is a lifetime thing.”

Review the NBAA Aircraft Transactions Guide at nbaa.org/transactions.

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