Seller Financing: Growing out of Necessity— Originally published in
BusinessAir Magazine, August 2012, Volume 22, No. 8.
Inspection equals protection. For the would-be aircraft buyer, that statement is equally true whether you are purchasing a pre-owned or new aircraft. It is absolutely essential that a buyer’s interests be thoroughly represented and protected during original aircraft production or during the pre-purchase inspection on a pre-owned aircraft.
Let’s talk about the process. In the case of a new aircraft purchase, the manufacturer will start or continue to build the specific aircraft you have selected. Whether production is just beginning or the aircraft is already on the assembly line, having an onsite technical representative who is an expert in the aircraft type being purchased is of critical importance. If you don’t know a knowledgeable technical representative for the aircraft type you are purchasing, your aviation consultant or aviation attorney should be able to provide you with a list of referrals.
In the case of pre-owned aircraft, buyers normally will have the chosen airplane moved to an inspection facility for a pre-purchase inspection. The prospective buyer needs to select an inspection facility that will be scrupulously impartial during the pre-purchase inspection. If you are the buyer, ask yourself these questions: Has the inspection facility done previous work on your aircraft? Do they receive significant business because of the seller’s broker? Does the inspection facility have any type of connection or loyalty to the seller?
Once you are certain you have found a neutral inspection facility, make sure your selected technical representative is on-site during the entire pre-purchase inspection. The technical representative needs to be your dedicated advocate day-in and day-out, making certain the aircraft is carefully scrutinized and all airworthiness items or discrepancies, as defined in the purchase agreement, are discovered and corrected prior to closing. No matter how detailed the purchase agreement is, there will often be some subjectivity as to whether an item must be fixed prior to closing. Your onsite representative will negotiate these points on your behalf and ensure that you have the safest aircraft possible after the completion of the pre-buy and at the least cost to you.
When acquiring a new aircraft, once the production process begins, it is never too early to have your representative onsite. Earlier in my career, I oversaw the closing process for hundreds of new aircraft. At the time, we had an employee who had an office right at the manufacturing facility. All of the aircraft were of the exact same specification, but when the closing date came, we always seemed to have hundreds of squawks that needed to be remedied. Often, the closing dates would be moved by a few days or even weeks until the aircraft was in acceptable delivery condition. Because there are literally hundreds of thousands of parts that have to be assembled to build an aircraft, some errors are inevitable. A buyer’s representative can discover these squawks and ensure correction while the aircraft is still being built. If you simply have someone go to the delivery location and look at the aircraft, you are too late. By that time, the interior has been installed and much of the aircraft is inaccessible. It is never too early to have your technical representative on hand when a new aircraft is in production, and you will find that it is well worth the money spent for that expert’s service.
Senior Transactional Counsel
Aerlex Law Group
Santa Monica, California