Build Your Jet Team
Jet transactions are complex. Building a team of experts will reduce costs, help achieve regulatory and tax compliance, and add value by creating a tailored plan for your new jet.
AVIATION COUNSEL Your first line of defense and a team leader. We organize your transaction, plan your regulatory compliant aircraft operating structure, consult on tax issues, and coordinate with your corporate counsel broker, flight department, CPAs, wealth management advisors and lenders. We work with your team to draft and review letters of intent, jet purchase agreements, broker agreements, financing documents, transfer documents, aircraft trust documents and registration paperwork. We spot potential transaction dangers and fix them before they become a problem.
IN-HOUSE TEAM Determines budget and timing and arranges financing. Brings the “big picture” to the team.
TAX PLANNING Maximizes state and federal tax savings for aircraft operating structure while maintaining FAA regulatory compliance.
RISK MANAGEMENT Secures appropriate insurance coverage for all aircraft operations. Implements corporate aircraft use policy.
FLIGHT DEPARTMENT Develops maintenance plan, assists aviation counsel with technical aspects of the transaction, arranges aircraft hangar location, and pilot training. Consults on scope of the pre-purchase inspection.
AIRCRAFT BROKER Locates the best aircraft available on the market.
What Jet Should I Buy?
Select your jet based on the majority of your flights. If your flights are 90% domestic, a short-range jet may be your best fit. If the majority of your flights are trans-oceanic, the option to berth seats, a crew rest area, and long-rage capability are primary factors on your list. Discuss your travel plans with your flight department and broker:
- Where will I primarily fly?
- How many passengers will generally be on the jet?
- How many hours will I fly per year?
- Should I consider fractional ownership or joint ownership?
Buying Your Jet
We can help you navigate the process.
Aircraft Registration: U.S. registry or tropical island?
The FAA requirements to register an aircraft are complex. Only U.S. citizens may own U.S. registered aircraft without operating limitations. Non-U.S. citizens (individuals and entities) can own U.S. registered aircraft through owner trusts and voting trusts or by complying with the FAA’s Based and Primarily Used (BAPU) rules. Read about registering your jet in a foreign jurisdiction here. Ask us which option is right for you.
Aircraft Financing
Allow at least six weeks to arrange financing. Last minute financing puts the borrower at a disadvantage when negotiating loan document revisions. Transaction Tip: Start planning financing early, and avoid these 5 financing traps here.
Making an Offer
The offer letter, or Letter of Intent (LOI), sets the tone of the transaction. The LOI spells out key business points or what made this jet “the one”. The LOI is your opportunity to create a better overall deal at less cost by negotiating key business points before spending time on the purchase agreement.
Key Points for an Effective LOI:
- Buyer’s name: An individual, entity, or a new entity not yet formed? The buyer may want the right to assign to a related entity or a trust before closing. Account for this now.
- Name of Seller: Include the seller’s legal name (not the seller’s agent) to allow your aviation counsel to start due diligence as soon as possible. The LOI should include the registered owner of the jet.
- Jet Description: Not only should you list the jet engines by make and serial number, include all ancillary items you expect to accompany the jet at delivery. If you like the aircraft’s china and crystal, include them in the LOI.
- Purchase Price
- Deposit: What is the Amount and the Timing of the deposit with the Escrow Agent?
- Inspections: Many buyers will want a Visual Inspection and a Records Review before the purchase agreement is signed. What is the scope of the Pre-Purchase Inspection and where will this occur? This point is especially important if the jet is currently located in a different country than the buyer.
- Technical condition of the jet at delivery: Will the seller only repair airworthiness items or does the CD player in the cabin also need to work?
- Delivery Location: Accepting delivery of a jet in a country where it will not be based (hangared) adds legal complexity and additional tax issues.
Jet Purchase Agreement
The purchase agreement follows the LOI and is generally signed after the buyer completes its initial visual inspection and test flight.
The purchase agreement spells out the LOI’s terms in detail and includes additional legal protections which are not necessarily deal-specific. The purchase agreement will lay out the closing procedure in detail. If multiple jurisdictions are involved, it may be impossible to close the transaction in one business day. The purchase agreement will set out when closing will occur in each jurisdiction, what forms must be filed in each jurisdiction, the order of operations during the closing, and when risk of loss for the aircraft will transfer from the buyer to seller.
If the buyer or seller is completing a 1031 tax-deferred exchange, the purchase agreement will address the additional steps required to complete the exchange.
Transaction Tip:
Buy title insurance and protect your aircraft againt certain liens and registration issues. Read more here.
Warranties and Service Programs
Warranties and service programs may come standard, but many have hidden conditions and onerous termination and cancellation clauses. If you’re buying, always have your jet acquisition team review the current warranties and service programs before signing the purchase agreement. The obligation to take assignment of warranties and service programs may be financially detrimental to the buyer. For sellers, the buyer’s decision not to accept assignment of a service program may trigger six figure cancellation fees.
International Registry
The International Registry (IR) is an electronic system that registers ownership interests in aircraft and aircraft engines. The two primary functions of the IR allow parties to register aircraft purchases and sales and search whether registrations have been made against an aircraft. All interests (purchase, sale, mortgages, leases, etc…) in aircraft are recorded on a first-to-file basis. Registering an interest in an aircraft is a best practice, and registration is generally required if the aircraft is financed. Read more about the IR here: https://www.internationalregistry.aero/ir-web/
Aircraft Registration Number
Reserve your custom FAA registration number here: https://amsrvs.registry.faa.gov/E.Gov/NN/reserve.aspx
If you already have a custom registration number, ask us how you can assign it to your new jet or retain the number when your current jet is sold.
Selling Your Jet?
Accepting an Offer
Notifications: Virtually every contract or agreement that touches the aircraft will require notification of a sale. Failure to notify may trigger default provisions or invalidate an assignment or transfer at closing. Make sure to keep your lender advised of your sale progress, and notify engine program provides well before the closing date.
Danger:
Never agree to deliver an Aircraft in an airworthy condition, unless airworthy condition is subject to the Purchaser’s verification. Courts have held that contracting to deliver an aircraft in an airworthy condition negates AS IS, WHERE IS language and can create a seller obligation that survives closing. Always make the aircraft delivery condition subject to the buyer’s verification.
Jet Closing and Delivery
Most states assess sales tax where the aircraft is located when title to an aircraft transfers. If the aircraft is located in Texas when the transaction closes, but the jet will be based in L.A., tax is due in Texas unless a sales tax exemption applies. Read about closing locations and tax planning here and ask us what closing location is right for you.
Danger: Tax Traps for Jet Buyers. Read how to steer clear of tax pitfalls for jet buyers and operators here.
