International Law and Immigration
Legal Considerations of Buying an Aircraft
By John T. Van Geffen
I have been practicing aviation law for roughly 15 years, helping individuals and companies acquire aircraft ranging in price from a few thousand to over a hundred million dollars. While it may seem counterintuitive considering the difference in purchase price (by several commas), buying a new Boeing Dreamliner usually takes less time and effort than buying a decades-old Cessna 152.
There is a large dichotomy between buying used and new aircraft. Unlike the numerous protections inherent in buying a car, aircraft acquisitions are guided chiefly by the terms of the contract (assuming that the parties have entered into a definitive aircraft purchase agreement). Absent warranties as to the condition of the aircraft, clear title, etc., the seller is merely offering nothing more than an expensive paperweight, and it is incumbent on the buyer to inspect the aircraft and its historical documents to ensure airworthiness—i.e., conforms to its FAA-approved type design and is in a condition for safe flight.
That said, due diligence is not just for the buyer. Selling used aircraft comes with numerous risks because even the strongest “AS-IS, WHERE-IS, WITH ALL FAULTS” language will not prevent the seller from being named in a lawsuit by an unhappy buyer who will inevitably argue that there were hidden airworthiness issues that the seller should have known about and failed to disclose.
At the most basic level, here are four basic rules for buying a used aircraft:
II. PREPARE A WRITTEN PURCHASE AGREEMENT
First, have a detailed and definitive written purchase agreement clearly setting forth a description of the aircraft and its equipment, its history and condition, and the respective rights and duties of the parties. Long story short, no matter how clear your expectations are, everyone’s memory will change over time (especially when the costs of repairs and upgrades start to reach or possibly exceed the purchase price of the aircraft).
III. INSPECT THE AIRCRAFT AND ITS RECORDS
Second, insist on a detailed, comprehensive pre-purchase inspection and review of all aircraft historical records and logs. DO NOT use the same facility that has been maintaining the aircraft to perform the pre-purchase inspection. The seller may have been maintaining the aircraft on a shoestring budget, and the mechanic or repair station may have already provided a list of suggested repairs either verbally or in some document outside of the logs. Moreover, simple bias aside, anything a mechanic missed during the last maintenance or inspection will probably be missed again during the pre-purchase inspection. Keep in mind that regardless of whether required maintenance or inspection was actually performed, if a licensed mechanic did not sign off the logs, the maintenance or inspection did not happen.
IV. CONDUCT DUE DILIGENCE
Third, find out who’s who. Too often, a buyer learns only after the fact that the seller was actually a broker or a maintenance facility doing the owner a favor. Some less credible individuals will even list aircraft with which they have no connection and seek your deposit when the aircraft isn’t for sale. This is also a great reason to ONLY use reputable escrow companies, say NO to paying deposits into broker or seller accounts, and always order a title search and copies of the aircraft’s registration and airworthiness files.
V. REVIEW THE BUDGET
Fourth, talk with your client’s CPA, CFO, insurance broker, bank, and local fixed base operator even before your client starts searching for an aircraft. Make sure that the aircraft that is being selected is adequate for the client’s needs. Soon enough, your client will start eyeing avionics upgrades, interior updates, etc., and you don’t want to have a budget in place only to be surprised by unexpected sales and use taxes, new airport-related fees, and rising insurance premiums.
VI. DISCUSS POST-SALE ISSUES
An aviation counsel’s questions to their clients don’t stop with the deal closing. Does your client intend to use the aircraft for business, personal use, or some combination thereof? Has your client determined how the aircraft will be managed and operated? Does your client need to have leases, non-U.S. citizen owner trusts, or joint ownership agreements in place? Does your client intend to have the aircraft marketed as available for charter, and if so, have they commenced negotiations with a charter operator?
Different Federal Aviation Regulations and Internal Revenue Service regulations may be applicable depending on how your client intends to use the aircraft. Noncompliance with these regulations can lead to enforcement actions, penalties, and even criminal prosecution.
Obviously, this is not an exclusive listing of things to look out for; there are plenty of other pitfalls and obstacles. Clients should seek aviation legal counsel before purchasing an aircraft rather than attempting to seek redress after purchasing the proverbial pig in a poke.
John T. Van Geffen is a member of California Lawyers Association’s International Law and Immigration Section Executive Committee. He is a partner at Avialex Law Group, LLP, a California-based aviation law and civil litigation firm representing clients across the United States and throughout the world.