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A Little Perspective on the Business Aircraft Purchase Agreement

Contributed by Doug Kvassay Aircraft Sales Representative with Duncan Aviation

A couple of years ago, one of the larger banks in the business aviation industry called asking for my immediate assistance in locating the purchase agreement for an aircraft that we bought for a client a few years prior. The bank was undergoing an audit and had no record of it. Although I located the file on the transaction, it did not contain a purchase agreement. This transaction was for a well-known individual for the acquisition of an aircraft that, at the time, was worth close to $20 million. It didn't take long to remember the details of the events surrounding the deal.

There Was No Aircraft Purchase Agreement

The aviation attorney for our client negotiated with the bank (the aircraft owner) until the bank called and said they had had enough. We were told we had to close on the acquisition the following day or lose the aircraft. We wired funds, received an FAA Bill of Sale (BOS) from the bank and took delivery of the aircraft.

When I started in this business, the process to buy a business aircraft was simple. You flew out to look at it, reviewed the records, did a quick test flight around the patch, handed the owner a cashier’s check, received an FAA BOS in return and flew home with the aircraft, all in the same day. There were no purchase agreements, no pre-purchase inspections and no escrows. Today, it is not uncommon to have two outside aviation attorneys spend the better part of two or more weeks negotiating a purchase agreement.


Purpose of Aircraft Purchase Agreements

An aircraft purchase agreement provides a road map, defining processes and deadlines of a purchase through the point of closing. However, in almost all cases, the purchase agreement is filed away once executed and never referred to again during the transaction. Even if a point of contention arises prior to closing, the buyer and seller usually work it out together without legal action, as the cost of litigating a dispute is never an economical option.

What many fail to realize is that an aircraft purchase agreement governs and spells out what both the buyer and seller are responsible for prior to closing. Typically, the only contractual promise in the purchase agreement that survives closing is the warranty of title, which is included on the standard one-page FAA BOS. In the scenario above, since time was of the essence, we verbally agreed to move along with the deposit and pre-purchase inspection and were finished before we had a contract, at which point it didn't really matter. All we were receiving was warranty of title. And if you have ever purchased an aircraft from a bank, you know that warranty is limited to anything they specifically had to do with the aircraft.


Necessary Legal Advice

If you have special tax requirements or require the setting up of an entity to hold the aircraft, legal advice from an aviation tax attorney can be indispensable. However, for a business aircraft transaction, where a straightforward purchase and sales agreement is sufficient, a competent broker working with your in-house or regular corporate attorney is a more economical alternative to hiring a specialized aviation attorney.


Know the Details Before You Sign

Whether you are buying or selling a business aircraft, the Aircraft Purchase Agreement is a very important document to the transaction. Because it incorporates all terms and conditions of the sale, it is vital that you take the time to know all the details of the contract before you sign.

Buying and selling an aircraft can be a stressful experience. You can lessen the stress by having a thorough understanding of the Aircraft Purchase Agreement. For more information, see the blog article “Know Your Business Aircraft Purchase Agreement,” posted April 26, 2012.

Doug Kvassay is a part of a team of four Aircraft Sales Representatives. He specializes in advanced aircraft aftermarket analysis and managing complex transactions. His aviation career began in 1980.

Duncan Aviation is a founding member of NARA. Duncan Aviation has helped clients buy and sell aircraft since 1956, and has facilitated more than 3,000 transactions in several different countries. For the latest aircraft sales listings, visit www.DuncanAviation.aero/aircraftsales.To read more articles by Duncan Aviation aircraft experts, visit Duncan Aviation’s blog, Duncan Download.

Posted on: January 8, 2013