Acquiring an aircraft should involve several professionals, the advice of whom can genuinely make the buyer’s ownership free of headaches and unnecessary surprises. While a buyer is not required to engage any professional, the advice and assistance obtained usually proves invaluable.
A typical list of aviation professionals who can add value to the transaction would be:
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- Aircraft Broker
- Aviation Attorney
- Lender
- Insurance Broker
- Escrow Agent
- Inspection Facility
Let’s examine the list in detail:
The Aircraft Broker
The first aviation professional you will likely encounter is an aircraft broker, whether buying or selling an aircraft. Aircraft brokers will be able to counsel you on your aircraft ownership options. Brokers have access to extensive aircraft inventories, are usually well-connected with other aviation professionals, and possess the necessary know-how to value the aircraft you seek to buy or sell. Brokers can also advise buyers about the technical specifications of the aircraft to help you determine whether the aircraft you want to purchase is the right model type for you.
Aviation Attorneys
Aviation attorneys protect the buyer from tax and legal liability, draft and review the aircraft purchase process documents, and generally pace the transaction. A key benefit to retaining an aviation attorney is tax advice, including Federal tax advice and State tax advice. Hundreds of thousands of dollars can be saved in taxes if the buyer is adequately counseled through the acquisition.
In addition to tax planning, an aviation attorney can provide helpful advice about aircraft ownership including whether to hold title to your aircraft in an LLC or whether to hold title to your aircraft in an owner trust, operating structures including leasing structures, and generally using and sharing the aircraft with third parties whether affiliated or not. Aviation attorneys may also counsel a buyer seeking to utilize their aircraft in a certain way, like sharing with other corporate affiliates or to third parties under FAR Part 135 operations, and accomplish this goal legally yet cost-effectively. Seasoned aviation attorneys should also always counsel buyers on how to avoid the flight department company trap.
The Lender
While an aircraft buyer can make a cash purchase, buyers typically engage a lender. Aircraft purchases are complicated, and the lender must be familiar with aircraft transactions. Certain lenders will only lend on certain types of aircraft or aircraft with a clean history, so it’s important to know which lenders may be preferred for a given transaction. It is also essential that the selected lender can accommodate your timeline for completing the acquisition.
The Insurance Broker
Aviation insurance brokers are highly specialized. A good broker must become part of the acquisition team to ensure the aircraft is properly insured, that the buyer and buyer’s assets are protected, and that the lender’s interest, if any, is addressed.
Pre-Purchase Inspection Facility
Similar to buying a car, buyers typically take the aircraft they expect to purchase to a mechanic before closing the transaction. The process is generally termed a “pre-purchase inspection,” and the mechanic would be an employee of the inspection facility. It is the maintenance facility’s duty to uncover any maintenance items that require correction by the buyer. The inspection facility will generate a report outlining the maintenance discrepancies discovered and the costs associated with correcting such discrepancies. The parties will then use the discrepancy list to negotiate the final purchase price or to terminate the transaction. The buyer often takes this opportunity to perform additional aircraft maintenance.
Escrow Agent
Parties to aircraft transactions frequently use escrow services. Most escrow companies in Oklahoma City have employees who have a desk at the FAA. Escrow agents will review all documents to be filed with the FAA, provide title reports and the point of contact for the flow of funds, and file documents with the FAA at the closing. They are an integral part of the transaction.
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