Aerlex Law Group

Buying a Pre-Owned Aircraft after the COVID Pandemic Pause

Buying a Pre-Owned Aircraft after the COVID Pandemic Pause — Originally published in BusinessAir Magazine, April 2020, Volume 30, No. 4.

No one knows when the world will get back to some semblance of normalcy after the global COVID-19 pandemic and what that new normal will look like until a vaccine is readily available. What we do know is that the pause that has occurred in aircraft transactions will eventually come to an end. When the hiatus ends, buyers will want to focus on certain items when choosing an aircraft and the acquisition team.

1. Price. I have participated in many conversations and webinars about the impact of the COVID-19 pandemic on the value of pre-owned aircraft. The myriad of opinions regarding future prices is staggering. The truth is that until we know how long it takes to get back to normal and the number of companies that are able to recover from the financial impact of the pandemic, no one knows what the values will be. However, we do know that at the start of the pandemic, the values of pre-owned aircraft were not overly inflated as they were at the start of the 2008 downturn. Therefore, there should not be a large correction in pre-owned aircraft values in 2020. However, simple economics tell us that if there are more sellers than buyers, prices will decrease.

2. 2020 Buyers. Another question that has been asked recently is who the 2020 aircraft buyers will be. Certainly there are individuals and industries that have not been negatively impacted financially by the pandemic. For those individuals and companies, 2020 may be a perfect time to consider purchasing a pre-owned aircraft depending on where prices go. Additionally, even if a company or individual has experienced some financial impact, the concern for safety until a vaccine is readily available, will likely drive up the number of people who choose to fly privately. This may mean, in turn, that owners opt to upgrade their aircraft in order to perform longer distance flights they might previously have flown commercially. Over the past two decades, private flyers have had various options available to them and have used hybrid solutions including a combination of commercial flying, charter, fractional, membership programs and jet cards. Buyers may now discard the hybrid approach in favor of full aircraft ownership or at least eliminate as much commercial travel as possible. Furthermore, we know that the number of people who can afford private aircraft ownership has grown over the past decade, but the number of people owning aircraft has not grown at the same rate. The greater health risks associated with flying commercially may now outweigh the factors that were keeping some individuals or companies from owning an aircraft in the past.

3. Aircraft Location. The location of the aircraft to be purchased will be important as the world slowly opens back up. If an aircraft is not already in the United States, the buyer should try to compel the seller to move the aircraft to the United States for the pre-purchase inspection. A pre-purchase inspection outside of the United States for a U.S. based buyer will likely be more challenging until a vaccine is available. Each location around the world will open up in a different way and on a different timeline. Understanding the array of restrictions in foreign locations will add a complexity to a transaction which may be better to avoid. Further, it may be difficult to find crew or technical representatives who are willing to go to international locations for a pre-purchase inspection.

4. Team Member Location. Once the aircraft is in the United States or if the aircraft is already in the United States, the parties should consider moving any team members to the pre-purchase location as soon as possible. Team members who need to be onsite during the pre-purchase inspection can avoid logistical challenges and safety concerns by using the aircraft being purchased to move individuals to the pre-purchase inspection location. Also, when selecting a technical representative who will be on-site during most of the pre-purchase inspection, it may be important to find team members who are based in the area where the prepurchase will take place. Alternatively, if a buyer already has identified the technical representative they intend to use for the pre-purchase inspection, it may be good to select a pre-purchase inspection location near to where the representative is based.

5. New Inspection items. In addition to the usual pre-purchase inspection items, the buyer should confirm how long the aircraft has been grounded during the pandemic and if all of the necessary steps were taken to properly preserve and maintain the aircraft during its time on the ground.

6. Timing. If the buyer wants to be ready to use the purchased aircraft exclusively and avoid flying commercially, then now is a good time to become the most prepared buyer. A link to a previously article on how to become the most prepared buyer can be found here – much of which is still applicable today.

There are some new considerations for an aircraft buyer during and after the pandemic pause. Logistics will be challenging for cross-border transactions until a vaccine is globally available and team member positioning may be an added challenge. Finally, since more aircraft have been grounded for longer periods of time, the pre-purchase inspection checklists need to focus on preservation items more than previously. However, the new considerations should not be a deterrent on a future purchase, as the market may present attractive options to a prepared buyer.

Please contact Amanda Applegate at aapplegate@aerlex.com or at 310-392-5200.