How Aviation Attorneys Help Avoid Aircraft Transaction Nightmares

In the highly regulated aviation industry, when you’re buying, selling or leasing business aircraft, experts agree it is essential to include an experienced aviation attorney.

Legal counsel can offer reliable advice on various aircraft operating structures and FAA considerations. The right attorney can also oversee contractual processes and facilitate a seamless closing. In fact, according to NBAA member experts, bringing a legal specialist to the deal will improve efficiency, save time and avoid potentially expensive headaches later. This is especially true if aviation is not a core competency of your organization.

“Having an aviation attorney means you are going to have the right guidance, counsel and expectations from the beginning for this specific type of transaction,” said former NBAA Board member Josh Mesinger, vice president of Mesinger Jet Sales.

“You should hopefully be able to affect what you are trying to do faster, because the parties know what’s involved,” he added. “And if you can achieve the right outcome faster, that usually means less stress and less money than if somebody’s having to learn about an aviation transaction at the same time they’re trying to be engaged in an aviation transaction.”

While involving general counsel for business aircraft transactions is essential for considering the full scope of an entire business operation, an attorney with specialized aviation expertise can be a kind of “translator” between the aircraft operator and the general counsel for the transaction, alongside the broker.

“This space is so highly regulated that if you don’t live in this space and operate here on a daily basis, it’s very easy to miss those nuances,” said NBAA Tax Committee member Mary Comazzi, partner and chair of the Aviation Practice Group at Barnes and Thornburg LLP.

Avoiding Possible Distractions, Pitfalls

Compared to many other industries, aircraft use and operations are heavily regulated, and there are penalties for failing to understand and comply with the applicable regulations. Keep in mind that worst-case transactions could result in unintended regulation violations, resulting in potentially illegal aircraft operations.

“What I have noticed when I am negotiating with someone who is not routinely in the aviation space, they tend to get hung up on some of the concepts unique to our industry,” said Comazzi. “For example, used aircraft are typically sold as is. If you have somebody who comes in who does not understand that as a typical term, they can become focused on issues that can become roadblocks or large speed bumps to consummating the deal or distractions from other material issues.”

A specialist in aviation law will more than likely be well-versed in the latest applicable industry regulatory changes. In addition to proper legal guidance, the NBAA Aircraft Transaction Guide, available to NBAA members, also recommends rounding out your acquisition team with an aviation tax adviser and an acquisition agent/broker who can provide technical and negotiating expertise.

“Each party wants to protect their own interests, but aircraft transactions have a different set of deliverables than other types of corporate transactions,” said Mesinger. “You need somebody who understands what is involved to help navigate that process. The respective parties should stay in their respective swim lanes.

“I am a broker. I work with my clients to manage the aspects of the transaction that are in my lane, finding an airplane, marketing an airplane, understanding and evaluating an airplane, establishing accurate expectations, understanding the commercial terms of the transaction – not the legal ones, technical oversight, etc.,” he added.

Orchestrating the Transaction

An aviation counsel can orchestrate the transaction, enabling the operator’s general counsel and the flight department to focus on everyday operations while contributing to the transaction as needed.

“Well-meaning advisers may try using tools and strategies that work in other areas of the law, but just do not work in aviation,” said Comazzi. “The result I often see is unintentionally setting up an owner in an operating structure that would result in significant penalties, interests and enforcement action for that particular owner, or result in the loss of otherwise available tax benefits.

“It is the old adage of: ‘You don’t know what you don’t know,’ until it is too late; and you’re facing an inquiry from the FAA; and then you realize that you have a problem,” she said.
During the setup of purchase agreements, aviation counsel can oftentimes point out a more favorable tax background than general counsel may be aware of.

“On an operational side, there may be more beneficial operational structures based on other strategies that are driven by compliance and tax reasons,” Comazzi said. “You may be missing opportunities to maximize tax benefits or to take advantage of certain structures that may work for your organization to solve a problem. You may be doing something more complicated when there is a simpler thing to do to achieve your operational goals.”

Making sure every deal properly considers all operating structures, applicable FAA regulations and tax implications, while paying attention to the company’s long-term business strategy and mitigating risk is not easy. Aircraft transactions are not the time to ignore potentially valuable legal resources.

As Comazzi warned, “Some advisers think it is just another contract. It is not just another contract; it can have so many downstream, irreversible repercussions.”

For additional guidance on considerations for aircraft transactions, visit nbaa.org/transactions.