An aircraft purchase and sale agreement is the central document in any aircraft transaction, setting forth the most important terms of the deal. Gerrard Cowan with AvBuyer asks industry experts to outline the major focuses in such agreements.
According to Stephen Hofer, President of Los Angeles-based Aerlex Law Group, not only does the aircraft purchase agreement set forth all essential commercial terms of the transaction, but it serves as the roadmap to guide all parties – particularly the seller, buyer, brokers and escrow company – as they navigate their way from the point of signature to the point of closing and delivery.
It is, therefore, vital to pay careful attention long before it comes to signing on the dotted line, he says. When the parties are ready to begin drafting a purchase and sale agreement, they will already have reached a meeting of the minds on the most basic points, such as what is being sold and the sale price.
Complications can arise in determining the delivery conditions, however. “In what condition, exactly, is the seller agreeing to deliver the aircraft at closing?” Hofer highlights.
“Sellers and buyers often have not focused on this issue at the time a Letter of Intent (LOI) is signed, so it’s up to the lawyers, working with their clients, the brokers, the technical representatives and sometimes the Pre-Purchase Inspection facility, to reach a clear understanding of the specifications the aircraft will satisfy at the moment the seller hands over the keys at the delivery location.”
Depending on how the purchase agreement is drafted, the precise language regarding delivery condition can sometimes cost one of the parties thousands, or even hundreds of thousands of dollars because it will help determine what constitutes a discrepancy or ‘squawk’, and who’s responsible for fixing it.
“Very careful attention needs to be paid to the contract at this stage of the drafting,” Hofer stresses.
Aircraft Purchase Agreements Handle the Unexpected
The purchase and sale agreement is central to a transaction not just because it defines an outline of how a deal is to proceed, but because it also contemplates “just about any sort of event, nuance or occurrence that might take place – those that are expected and unexpected”, Janine K. Iannarelli, President of Par Avion Ltd, shares.
Provisions to deal with the unexpected are perhaps the most important element, she says, because there needs to be a means to deal with something like damage occurring to the aircraft in the course of the transaction.
Unexpected events could also involve financial difficulties that impact the buyer or seller and their ability to conclude the deal. Iannarelli says she has even seen deals fall apart because one of the parties has passed away.
“You have to have a means with which to unravel the transaction in a fair and equitable fashion, because you can’t just break a deal,” she highlights. Usually, a financial solution is involved: the forfeiture of the deposit (or part of the deposit), for instance, or specific damages depending on the reason for the default.
This article was written by Gerrard Cowan with AvBuyer, and originally published on July 22, 2024.