When people think about starting a business in aviation, they tend to focus solely on the commercial uses of airplanes, such as chartering. However, there are so many other options for high-ROI companies in the world of aviation. For example, an operator who holds a Part 133 Certificate can utilize helicopters to carry external loads for tasks that other aircraft simply cannot. Examples of such situations include but are not limited to: (1) the placement of a commercial air conditioning unit on the roof of a skyscraper, (2) providing supplies to locations where a conventional air carrier operation is not suitable, and (3) aiding forestry departments in cases involving wildfires. There are numerous lucrative contracts available for those with a Part 133 Certificate. This article will provide tips for purchasing an existing Part 133 Certificate.
Purchase an Existing Part 133 Certificate
Before beginning business, you need to determine if purchasing an existing Part 133 Certificate is a better option for you than applying for a new Part 133 Certificate. The application process for a new Part 133 Certificate tends to take up to two years and requires a substantial amount of work. Whereas, if appropriately done, acquiring an already existing Part 133 Certificate will streamline the process. By acquiring an already existing Part 133 Certificate, the process is much quicker and more cost-effective. The long process of getting everything approved has already been handled by the existing certificate-holding company. Essential items such as the operational specifications (“OpsSpecs”) are in order at the time of the purchase, as well as the manuals for safety, training, pilots, and the approved jurisdictions that aircraft on the 133 Certificate can fly. Thus, if you purchase an already existing Part 133 Certificate, you substantially cut down on the wait time to start your operations. For this reason, assuming the appropriate financing can be arranged, purchasing an existing Part 133 Certificate is typically recommended.
Structure the Transaction as a Stock (or Membership Interest) Purchase
There are typically two ways to structure the purchase of a company: (1) an asset purchase or (2) a stock purchase. The FAA is clear that a Part 133 Certificate is not transferable. In other words, an FAA certificate is not an asset of the company that can be sold individually. Therefore, to purchase an existing Part 133 Certificate, the buyer must acquire the entire certificate-holding company.
Notify the FAA Early in the Process and Determine Their Level of Involvement
Similar to the purchase of a Part 135 Certificate, the FAA must be notified when a buyer acquires a Part 133 Certificate. Once the buyer submits the notice to the FAA, the amount of FAA involvement depends on the type of acquisition and the amount of changes made to the certificate, including the following types of changes:
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- Changes in management
- Turnover in personnel and reduction of workforce
- Labor disputes
- Rapid expansion
- Changes in fleet types
- Changes in outsourcing
- Changes in operational control systems and philosophy
- Changes in OpSpecs
- Changes to approved programs that are part of the operational control system
- Revisions to manuals containing procedures for conducting various operations, maintenance, and inspection programs
- Revisions to training curricula and/or changes in employee qualification criteria for persons who will be conducting merged or new operations and/or programs
Buyers can expect that the greater amount of changes to these items, the higher the level of involvement from the FAA. In addition, the process may look different depending on who is involved and how the deal is structured. For example, whether both the buyer and seller are certificate holders, and whether the deal is structured as a stock purchase, asset purchase, or merger, matters.
Mergers and acquisitions where there are a significant amount of the changes referenced above generally require significant FAA involvement and the development of a transition plan, though the determination of involvement will be ultimately made on a case-by-case basis by the Safety Assurance (SA) office. On the flip side, acquisitions by holding companies (noncertificate holders), when the certificate holder continues to exist as an independent entity (subsidiary), is a type of acquisition that requires little, if any, FAA action. Usually, few operational changes are made and the development of a transition plan is not necessary.
Conduct the Appropriate Due Diligence
The right aviation lawyer should be able to guide the entire due diligence process with a due diligence request list, which will request all of the necessary financial and legal documents and information needed to analyze the deal and discover potential liabilities. A Part 133 acquisition requires a solid understanding of the intersection between M&A law and areas of law impacting Part 133 Certificates, including aviation, real estate, and environmental law to name a few. Several legal issues should be investigated and overcome when purchasing an FBO, including:
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- Corporate Governance: Current cap table, operating agreements or bylaws including any transfer restrictions, in an effort to ensure 100% of the target company is transferred without any restrictions or resulting encumbrances
- Legal Contracts: Vendor, supplier, customer, airport, employee, IC contracts, and aircraft lease and purchase agreements should be analyzed to confirm the nature of relationships and potential liability or obligations flowing therefrom
- Regulatory Requirements and Approvals: Licensing requirements, regulatory approvals both on an annual recurring basis and also for the transfer of the target company, and insurance requirements
- Past Violations: Current and past history of legal violations, including an assessment of any resulting or potential liability
These are just some of the high-level subject areas included within a due diligence list. Again the right attorney should have a template due diligence request list, access to a virtual data room, and knowledge of how to streamline the entire process to be able to gather and analyze all of this data.
Of note, if a Part 137 Certificate is required for any “agricultural operations” conducted under the Part 133 Certificate, special attention should be applied due to the additional liability and regulatory nuance flowing from Part 137 operations.
Structure the Purchase Agreement to Limit Liability Exposure
After due diligence has been conducted, the next step is to structure the Purchase Agreement appropriately, with an emphasis on addressing any concerns or potential liabilities discovered during the due diligence process. The typical route to do this is through the representations and warranties section of the Purchase Agreement. The purpose of representations and warranties is to provide statements of facts and promises about what is being sold, acting as a form of assurance that the transaction is what the parties believe it to be and providing legal recourse if it is not. Specific representations and warranties are essential to Part 133 Certificate acquisitions, including representations and warranties relating to compliance with the law, taxes, real estate, condition of assets, and environmental compliance.
In the Purchase Agreement, buyers and sellers normally negotiate a survival period for the reps and warranties, providing the buyer with recourse and indemnity for a breach of a rep and warranty that occurs after closing within a specific period of months or years thereafter. A standard survival period is normally around 2 to 3 years, with a higher number of years for certain fundamental reps such as compliance with laws or taxes.
Purchasing an existing Part 133 Certificate requires specialized due diligence, attention to detail, and an overall understanding of the FAA regulations regarding operating certificates. If you want experienced legal counsel, please call us at the number below or email us at Counsel@BizjetLaw.com.