More scrutiny is needed by buyers in back-to-back aircraft deals.
Due diligence in private aviation has never been more important in today’s dangerous world populated with bad actors. Increasingly, fraud, cybercrime, money laundering, and terrorism compound the risks in standard (two-party) and back-to-back used aircraft purchase transactions.
Despite these concerns, some purchasers and sellers understandably feel frustrated that due diligence for them is repetitive or unnecessary. After all, they negotiate an aircraft purchase agreement to minimize their risk and memorialize their business agreement. It’s hard to disagree even as aircraft transactions become increasingly complex.
However, a myopic focus on the aircraft purchase agreement rather than broad risk management efforts may subject the deal participants to government inquiries, enforcement actions, or civil and criminal penalties. It is not hyperbole to say that deal participants should regard regulatory agencies as serious stakeholders in due diligence failures with substantial power and seemingly unlimited enforcement budgets.
Defining Due Diligence
Due diligence basically means doing your homework around buying or selling a private aircraft. That type of due diligence differs from diligence in selecting an aircraft management company, an FBO or MRO, or buying a company that holds a Part 135 certificate. And diligence for banks varies from other entities due to vast regulations, “know your customer” (KYC) rules, and internal policies.
Due diligence is not one-dimensional. It is a team sport that combines the efforts of deal experts for the parties. It is a dynamic process and adjusts to its purposes and findings.
Each relationship involving the parties must withstand and pass rigorous legal and practical assessments. An odd or troubling fact or finding, such as a suspicious seller, generically called a “red flag,” should lead to further questioning and an acceptable course of action in the transaction as part of the due diligence.
This article was written by David G. Mayer with Shackelford, Bowen, McKinley & Norton and published by AIN on November 8, 2024.
