“The privileges of a repair station are not transferable.”[1]
Aviation is a highly regulated industry. Aspects of ownership within the industry require different levels of participation, knowledge, and expertise depending on the form of transaction. Purchasing an existing Part 145 Certificate is one of the more challenging forms of ownership within the industry due to the strict regulations. A Part 145 Certificate provides the certificate holding company the privilege to operate as a repair station. The FAA provides that a “repair station refers to a maintenance facility that has a certificate issued by the Federal Aviation Administration (FAA) under Title 14 of the Code of Federal Regulations (14 CFR) Part 145 and is engaged in the maintenance, preventive maintenance, inspection, and alteration of aircraft and aircraft products.” This article provides a short-list of tips for acquiring an existing Part 145 Certificate.
Short List of Tips
- Work with legal counsel to determine whether to structure the transaction as an asset purchase or a stock purchase.
- Keep as many aspects of the Part 145 Certificate the same after the transaction as before the transaction to streamline the application process.
- Thoroughly inspect all assets and equipment.
- Pay attention to the purchase agreement.
Determine Whether to Structure the Purchase as an Asset or Stock Purchase
Generally, there are two ways to purchase a company: (1) an asset purchase (i.e., buying all or substantially all of a company’s assets), or (2) a stock purchase (i.e., buying the entire company).
Structuring the Purchase of a Part 145 Certificate as an Asset Purchase is Prohibited
As initial background, buyers typically prefer structuring transactions are an asset purchase because it allows buyers to carve out liabilities. However, as noted above, FAA Order 8900.1 states, “The privileges of a repair station are not transferable.” This means that an existing Part 145 Certificate cannot be purchased as an asset by way of an asset purchase. That said, while the Part 145 Certificate cannot by itself be transferred as an asset, the possibility still exists for a Part 145 certificate-holding company to sell or transfers all of its assets by way of an asset sale. Indeed, 14 CFR § 145.57 permits a repair station to sell or transfer all of its assets; however, if the new owner chooses to operate as a repair station, the new owner must apply for an amended or new certificate. There may be circumstances where structuring the purchase of a Part 145 Certificate-holding company as an asset purchase may make sense, such as if the buyer already has a Part 145 Certificate and simply wants to fold in the newly purchased assets into its existing Part 145 Certificate.
Structuring the Purchase of a Part 145 Certificate-holding company as a Stock Purchase is Permitted,
with Caveats
In most cases, a buyer wants to purchase an existing Part 145 Certificate, because the buyer does not currently have an existing Part 145 Certificate. The FAA recognizes a difference between an asset purchase and a stock purchase, stating in FAA Order 8900.1 that “There are occasions when repair station ownership changes without a corresponding change in location, facilities, or personnel. ” Under such circumstances, structuring the purchase as a stock purchase does not completely absolve the buyer from the requirement under 14 CFR § 145.57 for the new owner to apply for an amended or new certificate. Indeed, FAA Order 8900.1 states, “ASIs should contact their general counsel office when faced with questions concerning whether limited liability corporations or changes in stockholder ownership constitute a transfer of repair station assets.”
In other words, it is within the discretion of the respective regional general counsel office to determine whether a stock purchase will necessitate the buyer to submit a new application. Thus, buyer should work with and empower their legal counsel to communicate with the respective ASI and regional general counsel office in order to determine whether a new application will be required under the specific circumstances.
It should also be noted that avoiding the submission of a new application should not be the primary driver for structuring a purchase as a stock purchase. There may be good reason to submit a new application in order to obtain a new certificate number. For example, FAA Order 8900.1 states, “ASIs should inform prospective owners that they may be held liable for the work performed under previous management if they keep the same certificate number.”
Accordingly, if limitation of liability is of utmost importance, buyers probably should simply walk into a deal expecting to submit a new application for a new certificate number.
Under either scenario, either an asset purchase or a stock purchase, retaining as many aspects of the existing Part 145 Certificate (i.e., location, facilities, and personnel) the same after the transaction as before the transaction will help to streamline the application process by decreasing the amount of scrutiny applied by the FAA.
Ultimately, when structuring the transaction, a number of factors should be considered. The appropriate legal counsel should be able to communicate with the buyer to prioritize the factors most important to the buyer’s decision-making and then to structure the transaction appropriately. Close coordination between legal counsel and the FAA is highly recommended.
Inspect Equipment, Tools, And Inventory
Inspecting the equipment, tools, and inventory is of utmost importance. Once the transaction is finalized, buyers will be liable for all the work completed under their ownership. Additionally, as discussed above, buyers may be responsible for the work performed under the previous management if buyers waive the choice to receive a new certificate number during the application process. Accordingly, buyers should thoroughly inspect purchased equipment and assets and obtain the appropriate representations and warranties under the Purchase Agreement.
Pay Attention to The Purchase Agreement
The Purchase Agreement is the main legal document effecting the transfer of a Part 145 repair station. It provides all the agreed-upon elements of the deal and is where the parties protect themselves and limit liability. Additionally, it provides the agreed-upon legal framework to guide the sale or any issues that may arise after the closing of the transaction. Both parties will have different interests at stake, so it is important to know what to consider.
Buyers should always aim to strengthen the representations and warranties, include indemnity obligations from the seller, and consider buyer-favorable purchase structures including seller-financing, holdbacks, escrow arrangements, and purchase price adjustments.
Purchasing a Part 145 Certificate-holding company, or all of its assets, is not a simple task. We do not recommend attempting this transaction without the guidance of an expert. If you are interested in our assistance, please call us at the number below or email us at Counsel@BizjetLaw.com.
[1] FAA Order 8900.1, Volume 2, Chapter 11, Section 7, Subsection 2-1273(B), Sale or Transfer of Assets.