5 Things to Know Before Buying a Business Jet

Buying a business aircraft should be a straightforward, transparent process, but there are several elements that often take customers by surprise. Ensuring that you’ve planned for everything is key to a successful acquisition. The following are five areas that can often be overlooked by unwary aircraft buyers…

1. Documentation, Registration & Legal Requirements

Aurelie Millet, Vice President of Sales at Opus Aero, says aircraft buyers are often surprised by the extent of documentation and preparation that is required at the outset of an aircraft transaction – a common example being ‘Know Your Customer’ (KYC) information, which is needed to meet compliance requirements in the US, Europe and beyond. “KYC and compliance requirements have become much more stringent and wide-ranging than they were even a few years ago,” Millet warns. “Today, transparency and readiness in this area are critical from the very beginning, making it one of the most common areas where buyers underestimate the level of preparation required.” But buyers often overlook other aspects of the early planning needed for establishing the ownership entity, too, Millet says – such as determining the aircraft registry that will hold the assets. Such oversights can have serious consequences, most commonly delays in closing the transaction. “They can also expose the buyer to unexpected import taxes or compliance issues, and in some cases, prevent the buyer from performing according to the agreed transaction timeline. In some situations, this can lead to deals falling through entirely,” Millet adds.

Nick Schneider, president and CEO of Global Wings, highlights the de-registration and registration process, an essential part of every international aircraft transaction. It is important the buyer remains involved in this process, he says, which sees the seller initiating the initial deregistration with the local Civil Aviation Authority (CAA) and completing the relevant export documents for the aircraft. “Only after the aircraft has been exported can it be imported into the purchaser’s country, and only after it has been deregistered by the seller’s CAA can the buyer apply for a new registration in their home country,” Schneider notes. “There are numerous factors that can delay the de-registration process, and if this happens, the entire transaction comes to an immediate stop.”

2. Ensuring the Aircraft is Fit for Purpose

Buyers often fail to fully contemplate the future use of their airplane, according to Janine K. Iannarelli, President of Par Avion Ltd. This is a particular issue when they wish to use it for commercial operations under Part 135 in the US. For example, the aircraft might require “some pretty extensive modifications” to be fit for purpose, Iannarelli elaborates – such as ensuring the right flight data recorder is installed, and that all the relevant documentation has been addressed. It’s vital that buyers do their due diligence and investigate the aircraft fully to ensure it meets the finer points of their requirements, she advises, adding buyers should “make it a contractual obligation on the part of the seller that the aircraft is suitable for that use.” Tim Barber, who works in aircraft sales and acquisitions at Duncan Aviation, agrees that an “inability for the chosen aircraft to undertake their mission” is one of the major areas in which buyers fail to plan. For example, this could come down to an unexpected incompatibility when the aircraft moves from one jurisdiction to another, due to differences in Service Bulletins (SB). Such errors can lead to “cost, delay, loss of utilization of the aircraft for long periods, frustration due to not being able to perform as expected, and further costs incurred when changing to an aircraft capable of their requirement,” Barber warns.

Buyers often overlook the realities of future operations, Stephan Krainer, CEO of Primus Avia, concurs. For instance, an aircraft compliant with FAA Part 91 “might be perfectly suited for private flying in the US, but bringing it to Europe is a different ballgame,” he says. “The aircraft’s condition and the approvals required for modifications can differ significantly between jurisdictions. Conversely, certain EASA-approved modifications may not have FAA validation, creating headaches for transatlantic transactions.” If an aircraft isn’t fit for its intended country, you’re looking at unexpected expenses and delivery delays. “In fact, we recently had to unwind an entire transaction – legal implications and all – because the aircraft simply didn’t meet the necessary requirements. It’s a classic case of ‘measure twice and cut once’ in aviation.”

Todd Jackson, VP of Acquisitions for Elliott Jets, says one of the biggest surprises for buyers is often the condition and completeness of the logbooks. “Missing logbooks, incomplete records, or overlooked inspections can have a tremendous impact on the value of the jet. “Buyers should also confirm that all life-limited items come with the required 8130 tags and that every piece of supporting documentation is in order,” he advises. At a minimum, oversights in logbooks, inspections, paperwork or valuation can lead to unnecessary time delays, added costs and stress for all parties involved, says Jackson. “In some cases, these issues have led to deals being postponed or even cancelled, particularly when serious maintenance concerns or compliance gaps are discovered late in the process.”

3. The Pre-Purchase Inspection (PPI)

Max Hooper, Co-Founder of Corporate Jet Consulting (CJC) says that oversights related to the PPI (or the ‘pre-buy inspection’) are at the “top of the list” for buyer errors. This can include neglecting to conduct one in the first place, he says. A key error is failing to engage a third party to conduct the PPI. This became quite prevalent during the ‘seller’s market’ of the pandemic, because some sellers could dictate that they would only sell an aircraft without the inspection. Such an arrangement could leave buyers exposed if issues later surface, such as corrosion on the aircraft. “A pre-buy [inspection] typically needs to be conducted by a neutral party. You don’t want someone marking their own homework,” Hooper warns.

Schneider agrees the PPI is one of the most critical and complex processes in every aircraft transaction, beginning with selecting a qualified and capable maintenance facility that is mutually acceptable to the buyer and seller. Defining the scope of inspection itself is even more important, he warns, adding that a Continuous Airworthiness Maintenance Program (CAMP) report or a maintenance status report can help define this work-scope. “The maintenance facility will typically limit their work-scope and inspection work only to those specific areas that a buyer requests,” Schneider highlights.

“It is therefore extremely important that the buyer works with an experienced aircraft dealer to develop the appropriate inspection work-scope for a specific aircraft transaction.” But the questions don’t stop there, he adds. Once the PPI has been completed and the technical acceptance has been signed, what happens if the aircraft sustains damage on its flight to the delivery location? Who is responsible for the cost of repair, and how is a possible diminution of value addressed? “It is extremely important to work with an experienced aircraft dealer and an experienced aviation attorney to address these eventualities before executing an Aircraft Purchase Agreement,” Schneider says.

4. Arranging Finance and Valuation

Arranging financing takes time, Millet adds. Lenders need to be involved from the start “but buyers sometimes leave it too late in the process, creating avoidable complications”.  And Jackson notes that many buyers can underestimate how complex aircraft valuation can be. “Understanding the true value drivers, such as maintenance status, inspection history, market conditions, and paperwork completeness, is essential. Without a clear valuation strategy, buyers risk paying more than the airplane is actually worth,” he warns. Buyers using a financial institution to help fund the purchase of their aircraft must be aware of any specific requirements that the financial institution might have prior to making funds available for the transaction, says Schneider.

On the one hand, the aircraft purchase agreement might stipulate that the escrow account is fully funded with the purchase price prior to the movement of the aircraft to a delivery location. On the other hand, the financial institution involved might stipulate that it will only fund escrow once the aircraft has arrived at its delivery location. “This is a critical detail in almost every transaction that must be addressed well in advance of closing in order to avoid costly delays.”

Moreover, Hooper says buyers may fail to fully appreciate the operating costs involved with running the aircraft. Furthermore, they may aim to offset a large amount of those costs by chartering it out (see ‘Looking to Offset Operating Costs? Understanding Part 135 Revenue’ on p56 of this edition), only to regret the decision when they realise the returns are not as significant as expected. “Sometimes it should really be just viewed as a bonus: if you can get it when you’re not using the aircraft, then great, but it’s not going to make a significant contribution,” Hooper says.

5. Engaging the right Experts

It might seem obvious, but buyers often fail to hire the right advisors at various stages of the process, according to the industry experts. For instance, Jackson says they too often fail to engage a maintenance professional to oversee the PPI. “Without that expertise, important items can be missed, and the inspection’s work-scope may not go deep enough.” The key is to assemble the right team of experts well before entering the transaction, he notes. Buyers would also do well to leverage industry organizations like GLADA and IADA to help identify the right professionals. “A well-qualified broker can guide buyers through the market, help identify aircraft that meet their needs, and ensure that all documentation is in order,” Jackson notes.

“An aviation-focused attorney can review contracts, help navigate regulatory requirements, and advise on liability and compliance issues. “Similarly, an aviation tax specialist can provide guidance on ownership structures, tax planning, and potential incentives or pitfalls.” Krainer warns an increasing number of consultants are entering the market who are quick to “promise the moon – often at a premium price – but lack the nuanced knowledge required for complex, cross-border deals”. He says that technical status and aircraft modifications are often misunderstood or misrepresented, even while authorities worldwide have raised the bar. “My motto: ‘Greed eats brain’,” he concludes. “If buyers steer clear of the penny-wise, pound-foolish mentality and partner with credible experts, most transaction pitfalls can be sidestepped.”

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