Aerlex Law Group

The Letter of Intent: Getting Serious About an Aircraft Acquisition

The Letter of Intent: Getting Serious About an Aircraft Acquisition —
Originally published in BusinessAir Magazine, May 2013, Volume 23, No. 5.

When a buyer finally finds the perfect aircraft to purchase, he needs to show the seller he is really interested and ready to move forward. In today’s market, many sellers have had their aircraft on the market for an extended period of time and have most likely had numerous conversations with many potential buyers. In order for an interested buyer to distinguish himself as a serious buyer, a written letter of intent to purchase needs to be sent to the seller.

Letters of intent are often used for the purchase of both new and used aircraft, but this article will focus on pre-owned aircraft. Every letter of intent should contain several key elements. First, the buyer needs to specify the purchase price being offered for the aircraft. Second, the buyer needs to indicate if there will be an inspection, the scope of the inspection and where the inspection will take place. Next, the buyer needs to show he is committed to the purchase by offering to place a deposit into escrow upon execution of the letter of intent. The amount of the deposit and the escrow agent should be listed in the letter of intent.

In the case of pre-owned aircraft, the most important ele-ment of the letter of intent is the condition provision. A conditional letter of intent is the most common type and favors the buyer. This type of agreement allows the buyer to put down a refundable deposit and conduct a full pre-pur-chase inspection of the aircraft. Once the inspection report is issued, the buyer can decide if he wants to move forward with the purchase or cancel the purchase. If the buyer cancels, the deposit is refunded and the purchase agreement is terminated. This contingency permits the buyer to inspect the aircraft and identify any maintenance, repair or damage issues before committing to purchase the aircraft.

The second type of letter of intent is an unconditional letter of intent. In an unconditional letter of intent, the deposit becomes non-refundable upon execution of the purchase agreement. The buyer must accept the aircraft unless the aircraft fails to meet the terms of the purchase agreement. Typically, this means that as long as the aircraft is offered for delivery in the condition required in the purchase agreement, the buyer must purchase the aircraft or forfeit his deposit and the cost of any inspection.

Additionally, the letter of intent should state by what date the full purchase agreement must be executed and if the buyer or seller is responsible for the initial draft of that agreement. Finally, a letter of intent must have a date and a time after which the offer to purchase expires.

The importance of the letter of intent should not be underestimated. The letter of intent sets the tone for the entire transaction. It shapes the structure of the deal and it puts in writing details that have likely been discussed for days, weeks or even months. Buyers should take great care in drafting the letter of intent to make sure the deal is structured as desired from the initial writing. Deciding between a conditional and unconditional purchase is important and should be discussed with your aviation counsel, broker or consultant.

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