Properly managing an aircraft acquisition process is a complex task requiring the entire team to work together, remained focused in each of their respective areas of expertise, and communicating with one another in real-time. All egos need to be checked at the door, because the focus has to be what’s good for the client not any one individual. 

Planning the ownership and operating structures involves an analysis from the transactional, FAA regulatory, Federal Tax, State Tax, and other perspectives. Experienced aviation professionals will have the ability to foresee potential issues and address them early in the process, thereby facilitating a smooth transaction.

Generally, the steps in an aircraft transaction are:

 • Identification of the aircraft

 • Letter of Intent

 • Visual Inspection

 • Aircraft Purchase Agreement

 • Pre-purchase Inspection. 

 • Inspection Report. 

 • Conditional Acceptance. 

 • Correction of Discrepancies

 • Return to Service

 • Closing

Aircraft can be registered with the U.S. civil aviation registry by “U.S. citizens” (as defined by the FAA). There exist strict registration requirements, whether an aircraft will be registered individually or in a corporate or LLC entity.  The FAA has adopted guidelines for the use of non-citizen trusts for the purpose of registering aircraft by non-U.S. citizens, especially when the aircraft are to be operated by the beneficial owner of the trust. The FAA no longer issues opinions approving non-citizen trust agreements so it is important that the document comply with applicable law.  Careful consideration should be given by non-U.S. citizens to the method used to register aircraft on the U.S. civil aircraft registry.

A Letter of Intent (also referred to as an Offer to Purchase) provides a roadmap to key elements of the purchase agreement.

Letters of Intent typically address the following terms and conditions:

 • Aircraft description

 • The purchase price of the aircraft

 • Visual inspection process and location

 • The scope of the pre-purchase inspection and identification of the inspection facility

 • The deposit and identification of the escrow agent

 • Delivery conditions

 • Timing of execution of the purchase agreement

Failing to include important terms (such as specific delivery conditions) could result in misunderstandings when the purchase agreement is drafted.

Non-business use of business aircraft has several implications. An officer or employee using the aircraft for non-business purposes will have income imputed to him or her as a fringe benefit.  A company may be disallowed significant deductions if there is non-business  use of corporate aircraft for entertainment purposes. An experienced advisor can assist a company or executive to reduce the negative tax ramifications and optics of non-business flights. See the discussion under Public Companies for challenges faced by public companies with non-business use of corporate aircraft.

Importing and exporting corporate aircraft is a complex addition to an already complex process. An imported aircraft will require deregistration from any civil aviation registry as well as evidence that it is free of liens and encumbrances not only of record with the foreign registry but of record with whatever local filing locations may be applicable (and they may be different from how things work in the USA).  It is also important that appropriate U.S. and foreign customs entries be made, and attention to value added tax liability be considered if the aircraft is located in a foreign jurisdiction at the time of acquisition. Significant penalties can apply if appropriate customs entries are not made. A buyer or seller will also need to be on the lookout for doing transaction with persons on various government watch lists. And now, not only does the person need to be “clean” but the aircraft must not have been in Russia during a specified period.  KYC! KYC! KYC!

The cost of acquiring an aircraft can be extremely high. If not planned for, one of the largest upfront costs during the acquisition is the payment of sales and/or use tax on the aircraft purchase. Fortunately, there exist planning opportunities that can defer or even eliminate the imposition of sales and use taxes in almost every state.

The successful purchase of an aircraft requires the engagement of experienced aviation professionals.

• Aircraft Brokers and Technical Consultants – an experienced aircraft broker or consultant can greatly reduce the burdens of the purchase on the client. They will have extensive knowledge of the types of aircraft available in the marketplace and will be able to educate the client on which types are best suited for the client’s mission. When the aircraft undergoes a pre-purchase inspection, the broker or technical advisor will monitor the inspection to ensure that the client’s interests are being represented. Our experience is that aircraft represented by qualified and experienced technical advisors have more thorough inspection results if being purchased, and more limited repair costs if being sold.
• Escrow Agent – the escrow agent will do more than simply hold funds in an aircraft transaction. The escrow agent will issue a lien and registration search, make the necessary filings of legal documents with the FAA Civil Aircraft Registry and on the International Registry, and coordinate with aviation counsel.
• Insurance broker – an experienced aviation  insurance broker will be able to recognize the needs of the client. While we always recommend clients purchase the maximum amount of insurance that they can afford, an aviation insurance broker will know what the current industry standards are for the particular aircraft.
• Tax and Accounting Professionals – it is important that the client and aviation counsel coordinate structuring the ownership and operation of the aircraft as soon as possible once a determination has been made to potentially acquire a business aircraft. The sooner these professionals can be brought onto the team (whether they be the client’s in-house professionals or outside accountants) the more efficient the transaction will be implemented, and the less disappointing the results will be financially. Time and money is often wasted when these issues are left to the end to address.

In the current economic climate, aircraft financing has become an extremely important aspect of an aircraft purchase, especially since aircraft transactions do not contain financing contingencies like residential mortgage financing. Aircraft financing comes in a variety of forms which typically include: (i) asset based financing, where the lender receives a mortgage on the aircraft, (ii) lease financing, which includes operating leases, (iii) synthetic lease financing (where the lessor receives title, but the lessee receives the tax benefits and registers the aircraft in the lessee’s name). It is important to select a lender that can not only provide the most competitive interest rate but is also experienced in business aviation. Aircraft transactions tend to move quickly, with the financing needing to be ready at the time of closing. If financing is not ready when the aircraft is returned to service following its inspection, a buyer can be at risk for default under the purchase agreement thereby putting its deposit in jeopardy.

We have extensive experience negotiating different types of finance documentation including loan agreements, aircraft mortgages, and tax-oriented operating leases with premier aircraft lending institutions.