Working in aircraft transactions takes specialized knowledge, and it’s important to mitigate exposure to risk whenever possible. No matter what part of the process you’re involved in, there’s potential for something important to slip through the cracks. Due diligence and transactional integrity are crucial concepts that can bring to light transaction risk and ensure ethical, transparent deals. Let's break them down:
What is transactional integrity?
Transaction integrity emphasizes conducting deals with fairness and transparency. All parties involved with a transaction should provide and receive accurate and complete information, and the transaction should adhere to ethical standards. This includes:
-
Disclosure of all material information: No misrepresentation of facts or hiding of crucial details.
-
Compliance with regulations: Adhering to all applicable aviation and financial regulations (for a breakdown of common regulators, see our previous article).
-
Avoiding conflict of interest: Identifying and managing potential conflicts of interest to ensure unbiased decision-making.
-
Anti-corruption measures: Implementing measures to prevent bribery and other corrupt practices.
What is due diligence?
Due diligence is the comprehensive investigation conducted before entering into any aviation transaction, such as buying or selling aircraft, securing financing or forming partnerships. It involves thoroughly examining various aspects to mitigate risk and to make informed decisions.
-
Legal and financial analysis: Examining legal documents, contracts, financial statements and compliance with regulations.
-
Operational assessment: Evaluating the aircraft's airworthiness, maintenance records and operational history.
-
Market research: Understanding market trends, comparable valuations and potential risks associated with the markets in which the aircraft will operate.
-
Background checks: Investigating the parties involved in the transaction, including their reputation, source of funds and legal standing. This includes investigating the parties directly involved in the transaction and their links to potential bad actors through business relationships or their likelihood to participate in activities forbidden by regulators.
Why are these important areas of focus for all professionals working with aircraft transactions?
-
Mitigate risk: Thorough due diligence can identify potential problems early, preventing costly mistakes and legal issues.
-
Streamline the transaction: Good front-end due diligence can help prevent time-consuming surprises later in the process.
-
Protect assets: Transaction integrity safeguards investments and promotes ethical business practices in the aviation industry.
-
Build trust and credibility: Transparency and fairness foster trust between the parties involved, leading to stronger relationships and long-term success.
By prioritizing due diligence and transaction integrity, the aviation industry can create a safer, more reliable and more ethical environment for all stakeholders. NAFA's Transactional Integrity Working Group was established to educate members about the risk of fraud, which can occur at any stage of a transaction, and provide resources that could help mitigate the risk as well as avenues to report it. If you experience any issues that you think our membership should know about, please email Fraud@NAFA.aero and our committee will review your submission and consider how best to use the information while maintaining confidentiality for the party reporting.
Stay Up-To-Date on Transactional Integrity with NAFA
NAFA is committed to raising awareness and providing education to support transactional integrity in the industry and prevent fraud. Stay tuned for more webinars, articles and opportunities for you to learn more or get involved. Share these resources with your friends and colleagues and help ensure we all can do business as safely and transparently as possible.
This article was published by NAFA on May 10, 2024.