Like a smooth landing, a lot goes into making sure an aircraft purchase goes off without a hitch. The process can be especially daunting for the novice buyer.
Here's a look at three essential steps in the process and some pitfalls to avoid:
1.) Hire a broker-dealer or acquisitions agent. Thanks to the Internet, aircraft buyers today can find more information than ever before. Nevertheless, many buyers still turn to members of the National Aircraft Resale Association for valuable experience and deep background in this complicated arena. A good broker-dealer will know far more about the past, present and probable future of the market for used aircraft than can be found on a website. And that means what's happened in the last 30 days and what's likely to happen in the next 30 days, which can be very different.
"We are not only telling them what's on the market -- that's pretty widely known and generally available," says Bob Rabbitt, managing partner and cofounder of AvPro, an aircraft brokerage firm based outside Washington, D.C. "What they're really paying us for is market intelligence. You need experts that go narrow and deep in individual markets."
The broker-dealer can advise clients about strengths and weaknesses of specific aircraft. For example, most buyers prefer a 10-seat configuration in the Falcon 2000. Buying and then trying to re-sell an 8-seater in a few years might dramatically affect the price, Rabbitt says. "That represents 20 percent of the value of the airplane to change the seating configuration from 8 to 10 seats. Most buyers probably wouldn't know that."
Rabbit adds that the issues affecting a particular aircraft today aren't the same ones as 20 years ago. "It's constantly changing and evolving, and to stay on top of it you have be in the markets every day." Of course, a broker or agent should also be well-versed in the art of negotiation, even if a client wants to take the lead in that aspect of the purchase.
2.) Let the broker nail down exactly what the buyer's expectations are regarding the aircraft, both operationally and financially, and make sure they're realistic.
Bill Quinn, president of Aviation Management Systems, calls this step critical because clients "often don't know, necessarily, what they're getting themselves into. That's got to be the beginning piece for the whole process -- making sure that you know your client and understand what his ultimate expectations are."
For instance, does the buyer plan to operate the aircraft through a management company? "If you don't have a management company in place you've basically got to say, okay, you're going to fly it for this amount of time, and you're going to operate it this way or that way, and you've got to put a budget together for the buyer," Quinn says.
Buyers may try to figure out on their own what operating costs are, but Quinn says some of the information that's available can be misleading. "You've got to look at an airplane specifically -- that particular serial
number, where the plane is located, what the maintenance requirements are, what they're going to be, and what regulatory requirements are looming."
Another common expectation among aircraft buyers is that they will qualify for a tax deduction. But Jonathan Levy, legal director and partner in the Advocate Consulting Legal Group, says there are "a lot of tax and regulatory traps" that buyers can inadvertently fall into. "The plane might make perfect commercial sense for you, and you might be able to show clearly the cash flow of paying for the plane and the benefits that the plane is giving for your business, and yet still, for example, not be able to take tax deductions with
respect to the plane."
Obtaining financing and insurance are two of the more complicated topics that buyers must consider. Which brings us to the third point:
3.) Allow your broker to bring in other expertise as necessary. "In short, someone who adds value to the transaction and someone that can protect the interests of the buyer," Rabbitt says.
The broker or agent should be able to coordinate this, either working in-house or finding outside help. One requirement is for a technical consultant to conduct a physical review of the aircraft and its records... An accountant and/or tax lawyer who specializes in aviation transactions is likely another. If the client isn't a first time buyer, the latter could give guidance on creating a financially beneficial like-kind exchange under IRS section 1031.
So what kind of subject experts should a buyer use? The best he can find, Rabbitt says. "If we're buying a Gulfstream, I want a technical expert that worked for Gulfstream for 10 or 15 years and is now an independent consultant."
Levy suggests that an attorney who currently specializes in aviation transactions is a good investment. "Their knowledge is up to date and fresh and at the front of their minds. Whenever they see a novel situation they're able to call upon a deep reservoir of experience and industry knowledge to be able to resolve it."
Typically, the broker or agent serves as the "quarterback" for this team, coordinating the work and communicating with the client, although some buyers may want to assume some or all of that role.
Quinn says it's key that somebody be given the role of getting everybody on the same page -- piloting the purchase, so to speak. "You've got to have someone who's running the show, who manages the distribution of information to the team players, whoever they may be."
We can't help closing with a note about the role that the National Aircraft Resale Association plays in all this. Levy says it's "amazing" how much good information gets exchanged among members, whether it's what's a fair current price for a particular airplane or what a maintenance shop charges for particular upgrade. "It's a community where we are constantly sharing information with each other, keeping ourselves at the top of our game.”
Contributors:
Bob Rabbitt, Jr
Managing Partner
AVPRO Inc.
900 Bestgate Road, Suite 412
Annapolis, Maryland 21401
410.573.1515 Office
443.994.0533 Cell
brabbitt@avprojets.com
www.avprojets.com
William J. Quinn
President
Aviation Management Systems, Inc.
155 Fleet Street
Portsmouth, NH 03801
603 431-6600 (office)
603 957-1064 (mobile)
603 782-0235 (fax)
bquinn@amsinc.aero
www.amsinc.aero
Jonathan Levy, Esq.
Board Certified Aviation Law Expert
Shareholder
Advocate Consulting Legal Group, PLLC
1300 N Westshore Blvd Ste 220
Tampa FL 33607
(888) 325-1942
Fax: (239) 213-0698
www.advocatetax.com