Buying an executive jet - the ups and downs

28 Nov 2012

The prospective purchaser of a Gulf Stream G550 or Citation VII at the outset often thinks that this is just a more expensive (but even more exciting) variation on the purchase of their Aston Martin DB9. However, the legal ramifications in purchasing an aircraft are complex, often confusing and certainly far reaching.

Expert legal advice is necessary from the beginning of the process to completion (or in some cases abortion) of the purchase.

Although many aircraft buyers may be tempted to purchase their chosen executive jet on the basis of a short "bill of sale", the bill of sale is not in any way a substitute for a properly negotiated aircraft sale agreement.

The first critical step in any aircraft purchase is a pre-purchase inspection details of which should be contained within the Aircraft Sale Agreement. Typically a purchaser will seek the right to terminate the agreement or negotiate for repair of any areas which fail the inspection. The agreement should also ask for representations and warranties from the seller relating to damage of the aircraft, maintenance history (including the engine and other equipment) as well as, critically, title to the aircraft.

There should also be warranties relating to manuals and log books, compliance with all mandatory service bulletins and airworthy directives and that the aircraft has been properly maintained under the manufacturer's recommended maintenance programme. The agreement typically will also provide for a pre-purchase check flight and who is to be responsible for the costs of the pre-purchase inspection and flight, particularly if the aircraft fails either of those exercises. The delivery date of the aircraft needs to be agreed as well as the delivery location.

The seller and purchaser will need to consider whether they are buying or selling as individuals, or via a corporate vehicle, and if so the jurisdiction(s) where the company is registered. It is in the context of these areas that the tax ramifications (in particular sales and possible withholding tax) need to be considered. Obtaining tax advice at the start of the transaction is critical.

Another critical issue to be dealt with under the agreement is what is to happen if the aircraft is destroyed or suffers critical damage before the sale is completed. On the financial side the parties must consider who is to hold the deposit payable on signature of the agreement and importantly how completion is going to be achieved. The vendor will wish to know that the completion monies are going to be paid at the point of completion and the purchaser needs to know that he or she is buying the aircraft they think they are buying, with clean title, free of any mortgages and capable of transfer and actually transferred at completion when they pay up their monies.

Specialist escrow agents are usually engaged to assist in this process which will be covered under the terms of the aircraft sale agreement.

In the context of what is mentioned above it is important to identify who bears the risk of damage or loss to the aircraft during and up to completion and that adequate and comprehensive specialist aviation insurance is taken out. This will cover aircraft damage and also liability insurance to cover injury caused to third party property or person.

Finally, the question of registration of the aircraft in a particular jurisdiction of the purchaser and de-registration from the seller's registry need to be considered.

Howard Ricklow, Partner

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