owning & operating an aircraft

They should form an integral part of due diligence in any aircraft transaction, but who pays for the findings that emerge from a Pre-Purchase Inspection, and what benefits do they offer both seller and buyer? Gerrard Cowan, with AvBuyer, learns more.

Pre-buy or pre-purchase inspections (PPIs) are critical to the aircraft acquisition process, ensuring the aircraft meets the required technical and airworthiness standards. It can be a complex area, with varying financial implications. But what are some of the common issues that arise from the process that buyers and sellers should be aware of?

The need for a PPI is clear. It isn’t possible to obtain a full understanding of the asset from a due diligence perspective based on technical specifications or remote records and photos alone, says Rob Watts, Director of Consulting at ACC Aviation.

“Performing a thorough inspection of the aircraft/engine and its records will ensure that the buyer knows what they’re buying, [the aircraft’s] technical condition and airworthiness status, and make the buyer aware of any potential maintenance expenditure liabilities they may be acquiring,” he says.

“The inspection also serves as the basis for further price (or other conditions) negotiations, should it be required.”

George Kleros, Senior Vice President of Advisory Services at JSSI, says a PPI should always be considered a mandatory step in the transaction process, adding that the complexity of the process is often impacted by such factors as the aircraft’s age and operating region. However, the PPI “may have been overlooked during the pandemic as one of the seller’s conditions to expedite the sale.”

Who Pays for any Issues the PPI Identifies?

Typically, the issue of who pays for what following a Pre-Purchase Inspection will be clearly identified in the aircraft purchase agreement, says Kleros.

“Airworthiness squawks - which require corrective action immediately to allow the aircraft to fly - usually default back to the seller. Non-airworthy discrepancies such as exterior/interior cosmetic issues or wear-and-tear could be deferred and deflected back to the buyer,” he explains.

There may be concessions on either side, but “it all depends on the willingness of the seller and buyer to compromise and come to an agreement.”

Read full article here

This article was written by Gerrard Cowan of AvBuyer and originally published on July 25, 2024.

NAFA member, David G. Mayer, Partner at Shackelford, Bowen, McKinley & Norton, explains co-ownership structuring and sharing the use of an aircraft involving one or more co-owners without engaging in illegal charter operations (134 ½ operations). Regulatory, tax and risk management are critical – among other things. Guard against mistakes.

Owners and potential aircraft purchasers have for a while told me they want to buy or continue to own an aircraft but intend to share ownership with at least one other person. They recognize the value of freeing up capital from the aircraft purchase price, deploying the cash into their businesses or investments, decreasing ownership costs, and sharing the risk of depreciating aircraft values.

Fundamentals of Aircraft Sharing

How do the parties start their shared aircraft ownership experience? Before all else, they should agree to buy and/or share a mutually acceptable aircraft that accomplishes their respective missions. They should genuinely and confidently trust each other to honor their aircraft arrangements.

To avoid false starts or panic when a prospective buyer understands the true cost of aircraft ownership, each party should model and/or consult professionals to ensure that the economics make sense individually and collectively.

The parties should also address the other major issues entailed in sharing an aircraft. Tax planning and limitation of liability—starting with a request to form a limited liability company (LLC)—often surface first. More broadly, the parties should discuss their respective ideas for buying, owning, managing, operating, maintaining, and improving an aircraft as well as sharing costs.

From a legal standpoint, it is critical to comply with the Federal Aviation Regulations (FARs). As the parties plan risk management, they should promptly confirm that adequate insurance is available to cover their aircraft ownership and operations.

Read full article here

This article was originally published by AIN on July 12, 2024.

Piercing the veil isn't as difficult as many LLC owners assume.

My clients usually plan to use a limited liability company to own their aircraft, assuming the LLC will protect them from personal liability. Yet they often do not realize that an LLC is far from a bulletproof shield.

Although LLCs can provide barriers to private third-party claims against their owners, the reality is that certain claimants may cut through an LLC to reach the personal assets of the owner/members and other related parties. Perhaps more concerning, the U.S. government has regulatory and statutory authority that may extend personal liability to more individuals and entities than just owners, including their officers, directors, managers, pilots, and aircraft operators.

This personal liability exposure may come from three or more directions. First, third parties—including those who, for example, make claims for breach of contract, personal injury, or wrongful death—may try to “pierce the corporate veil” to reach into the pockets of LLC owners and others to pay for their claims.

Second, the FAA and the Department of Transportation can tag LLCs, LLC owners and managers, pilots, and others under the Federal Aviation Regulations (FARs) and federal statutes.

Third, the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Treasury Department, acting under the new Corporate Transparency Act (CTA), has few limits in pursuing wrongdoers under the CTA.

Read full article here

This article was written by NAFA member David G. Mayer, Partner at Shackelford, Bowen, McKinley & Norton, and originally published by AIN on May 10, 2024.

Every US state has its own combination of sales and use taxes, property taxes, and sometimes other surcharges it assesses on business aircraft based in, or even just flying to, the state. So how do you know where to arrange delivery of an aircraft to make best use of these? AvBuyer's Chris Kjelgaard asks the experts...

In addition to accounting for sales and use taxes on business aircraft, some states have generous exemptions too, so it’s fair to say that a tax consultant should always be one of the first team members hired by business aircraft buyers in the US to ensure the purchase is handled professionally, smoothly, and concludes successfully.

The most important thing is to call [the tax advisor] first, so you don’t make bad decisions, Daniel Cheung, Principal of aviation accountancy firm Aviation Tax Consultants highlights. “Make your tax planning proactively – call in a tax consultant in advance,” before the aircraft transaction gets under way.

Another reason why a tax consultant should be a core member of any US-based business aircraft acquisition team is that “the [US] tax code is not friendly in terms of complexity,” adds Cheung. “You have to deal with the IRS, the FAA, and even the Securities and Exchange Commission if you’re a public company.”

Cheung explains “proper planning obviously is the key” for any owner buying a business aircraft to minimize their tax exposure to the purchase. Assessments of sales and use taxes depend on where the aircraft is based or hangared, “particularly if the aircraft lives in two or three places”, in which case it may be subject to sales and use taxes in more than one state.

For instance, he notes, “Chicago, Illinois is extremely difficult in terms of tax, but Gary, Indiana [just over the Illinois-Indiana state border a few miles south of Chicago] is not.”

According to Cheung, “80% of the tax planning is based on IRS requirements”. These requirements should be a more immediate concern for the buyer’s purchase advisory team than compliance with FAA regulations, he says, because compliance is ongoing but the tax payment is one-time.

“So the primary discussion is focused on income tax requirements and ownership structure, because the key to the planning is ownership structure”, says Cheung.

“Who owns the aircraft is the key in terms of getting the bonus depreciation rights” which can be offset against tax liability, and “the corporate structure of the client will determine the structure of the ownership of the aircraft”.

Read full article here

This article was originally published by AvBuyer on May 8, 2024.

There are several basic things to know before buying an aircraft, and some less obvious areas too. Having asked the experts to highlight some of these in his previous article, Chris Kjelgaard continues with another five...

After establishing the need for aircraft buyers to pick the right broker, add the right experts to the acquisition team, set and maintain an adequate transaction timeline and meet the financier’s documentation needs, there are other things that should be known before proceeding to buy a business jet.

Did you miss Part 1 of this article? Find it here.

Duncan Aviation’s Sales and Acquisition Specialists Tim Barber and Leah Alexander, and OGARAJETS’ Head of Global Sales, Dustin Cordier share some more things buyers should be clear about...

1. Insist on a PPI and a Full Aircraft Logbook Review

During the height of the post-Covid sales boom, many first-time business aircraft buyers accepted sale terms which did not allow for any pre-purchase inspection of the aircraft and its maintenance records to be performed.

However, every responsible broker and aircraft technical inspector would never recommend that a buyer allow a seller to dictate this. If allowed, it effectively means the buyer is agreeing to buy an aircraft sight unseen without any knowledge of the aircraft’s condition.

At the very least, the buyer should insist that the technical inspector representing them in the purchase negotiations be given full access to the aircraft’s logbook, says Cordier.

The logbook contains the aircraft’s full maintenance history because it should contain full details of each fault found, repair performed and overhaul conducted on the aircraft, including – for US-registered aircraft – a copy of every FAA Form 337 recording major damage and repair.

For the seller to offer the buyer access only to the maintenance tracking software record for the aircraft is not sufficient. “Using maintenance tracking software for that review is like watching a movie version of the book,” Cordier says.

Read full article here

This article was originally published by AvBuyer's Chris Kjelgaard on April 23, 2024.

FOR IMMEDIATE RELEASE: December 11, 2023    

Contact: Tracey Cheek 
tlc@nafa.aero  
405.850.1292  

Eli Mansour 
emansour@swlaw.com  
858.910.4772 

NAFA Welcomes New Member: Snell & Wilmer  

National Aircraft Finance Association (NAFA) is pleased to announce that Snell & Wilmer has recently joined its network of aviation professionals. Snell & Wilmer is an aircraft transaction advisory service that helps clients make the best decisions when buying, selling or owning a business aircraft.  

“We’re excited to welcome Snell & Wilmer to our growing organization. Their services enhance NAFA’s available offerings, and we support their services to advance our members,” said Ed Medici, NAFA President.  

About Snell & Wilmer: 
Founded in 1938, Snell & Wilmer is a full-service business law firm with over 500 attorneys practicing in 16 locations throughout the United States and in Mexico. The firm represents clients ranging from large, publicly traded corporations to small businesses, individuals and entrepreneurs. 

Snell & Wilmer’s aircraft law practice consists of knowledgeable attorneys experienced in the legal issues facing aircraft owners and operators, air carriers, flight schools and fixed base operators and other aviation-related service providers. They provide a full range of legal services related to the acquisition, ownership and operation of aircraft, tax planning and ownership structure, fixed base operators, maintenance and repair organizations and other aircraft service providers, FAA and DOT regulations, aircraft and component product liability and accidents and other aviation transactional and litigation matters.  

Snell & Wilmer attorneys have experience in federal, state and local legal issues applicable to aircraft operations and transactions. In addition, several hold FAA pilot licenses and have diverse operating experience, including charter operations and military aviation. 

For more information, visit swlaw.com. 

About NAFA:  
The National Aircraft Finance Association (NAFA) is a professional association that has been promoting the general welfare of aircraft finance for 50 years. Our network of members is comprised of lenders and product service providers who work together to finance general and business aviation aircraft. NAFA sets the standard for best practices in aviation finance by educating its members on the most up-to-date industry trends and best practices. Government legislation, market influences and industry insights allow member companies to provide the highest quality services the industry has to offer. 

Can you be sure a pre-existing lien on your aircraft won’t come back to bite you? Gerrard Cowan polls a selection of experts to understand the nature of liens, how to check and safeguard against them, and what to do if a notice of foreclosure is served...

Liens can be a complex factor in business jet ownership, posing financial challenges for aircraft operators. Owners must ensure they fully understand the nature of any liens on their own aircraft, according to industry experts, while buyers should secure the best possible industry advice in any transaction.

There is a wide array of liens that can attach to an aircraft, its engines, or related components. But it is liens relating to financing that tend to be enforced more than other types, according to Brian Macbean, Director of Credit & Sales at AOPA Aviation Finance.

“Any time the aircraft is used as collateral for a loan, the lender will file a lien on the aircraft. Lenders that specialize in aircraft financing often file liens on the aircraft, the engines, and the avionics,” he adds, pointing to the prevalence of mechanics’ liens, also.

Liens on US-based aircraft should always be filed with the FAA, Macbean notes. “Depending on the specific scenario, a Uniform Commercial Code (UCC) filing could also be an effective method to assert interest or influence relating to an aircraft.”

Liens generally fall into two categories, according to Lori McGee, Partner at Jetstream Aviation Law, including consensual and non-consensual liens.

Consensual liens are typically agreed-upon between a lender and an owner, or another party with an interest in the property, McGee elaborates. For example, this could include aircraft mortgages and security agreements.

Non-consensual liens arise by operation of law, not as the result of an agreement between the parties – mechanics’ liens being primary examples. In the US these are governed by state law and vary from one state to another.

“Although the specifics of this type of lien are different in each state, generally speaking [they] are meant to provide a person that performs work or supplies materials for an aircraft with an interest in that aircraft to secure payment for such work or materials," McGee says.

Read full article here

This article was originally published by AvBuyer on November 20, 2023.

FOR IMMEDIATE RELEASE: November 16, 2023    

Contact: Tracey Cheek 
tlc@nafa.aero  
405.850.1292  

David Coleman
President 
info@colemanjets.com
847.748.8333 

NAFA Welcomes New Member: Coleman Jet Solutions 

National Aircraft Finance Association (NAFA) is pleased to announce that Coleman Jet Solutions has recently joined its network of aviation professionals. Coleman Jets is an aircraft transaction advisory service that helps clients make the best decisions when buying, selling or owning a business aircraft.  

“NAFA members facilitate the financing of general and business aviation aircraft on a global scale,” said Ed Medici, NAFA President. “We welcome and support Coleman Jet Solutions’ services that play a role in advancing the interests of NAFA members within the aviation industry.”  
 

About Coleman Jet Solutions: 
Coleman Jet Solutions, located in Chicago’s North Shore, provides technical, regulatory and financial guidance in aircraft transactions.   

President David Coleman grew up in business aviation and has a keen interest in supporting financial institutions when complex cross-border or distressed transactions are necessary. This expertise led him to start Coleman Jet Solutions in 2021.   

With over 75 years of combined experience in the aviation industry, Coleman Jet Solutions helps clients make the best decisions when buying, selling, or owning a business aircraft. Their expertise in aircraft research, aircraft evaluation and negotiation techniques is for the sole benefit of its clients. 

For more information, visit http://www.colemanjets.com/. 
 

About NAFA:  
The National Aircraft Finance Association (NAFA) is a professional association that has been promoting the general welfare of aircraft finance for 50 years. Our network of members is comprised of lenders and product service providers who work together to finance general and business aviation aircraft. NAFA sets the standard for best practices in aviation finance by educating its members on the most up-to-date industry trends and best practices. Government legislation, market influences and industry insights allow member companies to provide the highest quality services the industry has to offer. 

NAFA member, Duncan Aviation, discusses six reasons why you’re better off going exclusive with an aircraft broker.

SIX PITFALLS OF A NON-EXCLUSIVE RELATIONSHIP

Aircraft sales brokers frequently talk to owners who believe they are better served to have their aircraft represented by multiple brokers rather than committing to an exclusive agreement. They believe this will raise the aircraft’s market exposure, increasing the likelihood of it selling quickly, and result in a more lucrative transaction. This is rarely the case.

A reputable aircraft broker will typically not enter into a non-exclusive contract. Here are six reasons why you’re better off going exclusive.

EXCLUSIVITY COUNTS

I met with an owner who had two aircraft for sale. One was already on the market without an exclusive agreement, and the owner was planning to make the same sale arrangements for the second aircraft.

After 30 minutes of research, I found the first aircraft represented by five brokers at three prices, all with different total aircraft hours. One broker even failed to mention the engine programs. This illustrates the feeding frenzy mentality and misinformation that prevails when an aircraft is in the market without exclusivity.

After the owner discovered how his first aircraft was being represented, I secured the exclusive agreement of the second aircraft.

IN WHOSE INTEREST?

With no certainty of getting paid, non-exclusive brokers typically do not invest much time and money to represent an aircraft thoroughly. These informal arrangements create competition among brokers instead of buyers, so the non-exclusive broker may lean toward persuading the seller to lower the price quickly in an attempt to get the first bite. There is not the same incentive for a non-exclusive broker to ensure that the seller’s best interests come first.

Read full article here

This article was originally published by Duncan Aviation in December 2022.

NAFA member, Stephen Hofer, President of Aerlex Law Group, discusses the use of Sustainable Aviation Fuel.

For owners and operators of private and corporate aircraft, the use of Sustainable Aviation Fuel or “SAF” to power jet engines is becoming more accepted, although challenges still loom with regard to its adoption. However, industry experts are working to promote the product and to stamp out some of the fallacies regarding its use.

Charles Etter, a scientist with Gulfstream Aerospace, recently told NBAA that SAF has to satisfy all of the requirements imposed under ASTM D1655, the industry standard that establishes the criteria for Jet A and Jet A-1 aviation fuel, and it has to be tested both before and after it is blended with conventional fuel. “There are no negative performance impacts with SAF, no changes in maintenance or fueling practices,” Etter emphasized. “It’s not like Jet A — it is Jet A.” According to Etter, Gulfstream has been using SAF in its aircraft since 2011, bought more than 1.8 million gallons, conducted hundreds of flights, and all without a single problem.

Frank Moesta, a senior vice president with Rolls-Royce, told NBAA that Rolls engines are currently certified to run on a blend of 50% SAF and 50% kerosene and have run hundreds of thousands of operations, on the ground and in the air, without incident. Moesta said Rolls-Royce already has conducted flight tests using 100% SAF and the engines are actually more efficient and produce fewer emissions. He characterized the current 50/50 percentage limitation as an issue of availability rather than capability.

Read full article here.

This article was originally published by Aerlex Law Group on July 12, 2022.

NAFA Member, David G. Mayer, partner in the global Aviation Practice Group at Shackelford, Bowen, McKinley & Norton, discusses aircraft privacy. 

Business aircraft owners around the globe constantly risk exposure of their personal information on the ground and in the air. The consequences could result in threats to their safety and security or cause the loss of opportunities for them or their enterprises. For large corporations, even the optics of operating business aircraft may invite unwanted public scrutiny.

In light of these risks, aircraft owners and operators (owners) should, with their best advisors, apply technology tools to thwart breaches of privacy, create legal ownership structures to protect their identity, and implement security and aircraft use plans to mitigate these risks. They should also monitor and adapt to changes in laws that affect access to personal information, such as the FAA’s controversial pivot on December 12 to enhance privacy—at a potentially burdensome cost.

Read full article here

This article was originally published in AINonline on January 13, 2023.

Without people, airplanes don’t fly.  Owning, maintaining, and managing business aircraft is complex, and most focus on the physical assets, technology, and financing.  But the “human capital” – the people who fly, maintain, and service the aircraft – are just as important.  Listen as NAFA members and VanAllen Group CEO Jeff Agur and Managing Director Don Henderson discuss how bizav’s success depends on how well the people aboard the aircraft and on the ground are chosen, how they are trained, and how effectively they communicate with each other, in Human Capital Gains.

Listen to the podcast now

This podcast was originally published in Business Aviation Advisor on December 23, 2022.

NAFA member and President of Asset Insight, Tony Kioussis, interviews NAFA member and President of Priester Aviation Rich Ropp.

Rich Ropp discusses professional aircraft management, the services it includes and their potential value to the aircraft’s owner.

• Defining Professional Aircraft Management.
• The various services available through Professional Aircraft Management and their potential value to the owner.
• Does aircraft management make sense for any aircraft size?
• The kinds of Fees associated with Aircraft Management services.
• What are the questions a potential aircraft owner should ask any firm they are considering?
• Does a management company’s location relative to the operator’s home base matter?

Listen to Asset Insight's Podcast here

This Podcast was published by Asset Insight in AvBuyer on September 20, 2022.

NAFA member, George Kleros, Senior VP, Advisory Services for Jet Support Services, Inc. (JSSI), discusses how you can plan ahead when it comes to aircraft maintenance.

Whether you are a long-time aircraft owner or operator, or a first-time buyer, your aircraft may remain grounded prior to or just after the sale. Current owners also may experience much longer than usual wait times for scheduled or unplanned maintenance. What factors are driving these delays, and what can you do?

An unprecedented number of aircraft transactions have occurred since late 2020 and are continuing through today. The pandemic-induced shortage of aviation parts continues, compounded by the war in Ukraine, which has strained the export of precious metal commodities from which parts are manufactured. And the decrease in available maintenance, repair, overhaul (MRO) capacity for airframe and engine work persists, driven by two factors: retirement of long-time workers, and the surge of new aircraft owners.

The last 21 months of increased flying and parts shortages have overloaded the engine shops, and rental engines are being used for much longer than anticipated. If your MRO facility is able to secure a rental, you may get only one engine to cover both overhauls. This would mean back-to-back shop visits, putting your aircraft out of service for twice as long as usual. When this is the only option, you may run out of operational time on the second engine waiting for your first engine to come out of the shop. Your flight or maintenance personnel can request the engine manufacturer for an extension to bridge the amount of time the engine may be used.

Read full article here

This article was originally published by Business Aviation Advisor on December 3, 2022.

NAFA member, Stephen Hofer, President, Aerlex Law Group, discusses the importance of using experienced professionals when it comes to aircraft acquisitions.

People who work in the private aviation industry constantly stress the need for would-be aircraft buyers and sellers to assemble a team of professionals to support them in the purchase or sale of business jet aircraft.  That team includes brokers, attorneys, financial advisors, aircraft managers, technical advisors, lenders, insurers and title and escrow handlers.  What’s critical, however, is that the members of the team actually have experience and expertise in handling private aircraft transactions.  A failure to includes knowledgeable and seasoned pros on your team can have disastrous consequences.

The attorneys at Aerlex Law Group have handled over 1,000 whole and fractional aircraft acquisitions over the past 17+ years and while we regularly give this advice to potential or new clients, we tend to treat the guidance as pro forma, a given, “why of course, why would you do anything else?”  That being said, I am approached periodically by would-be clients who want Aerlex to help them fix problems that have already erupted – and I am sometimes astounded to learn of mistakes that were made, even when the buyer or seller had legal counsel involved.  What it proves, beyond a shadow of a doubt, is that our industry has its own unique methods and protocols and those procedures are in place for a reason.  Here are a couple of examples (names have been omitted and the facts have been changed somewhat to preserve confidentiality).

Read full article here

This article was published by Aerlex Law Group on October 19, 2022.