Business aviation professionals evaluate, manage, and mitigate risk on a daily basis. Whether it is the amazing individuals flying and operating your aircraft or the specialist advisors assisting you to buy or sell your aircraft, they are continually looking for risks that could cause delays, increase costs or impact the safety of your flight.

In this series of articles, we will examine transactional risk management techniques for business aircraft and provide you with our advice and experience on how to reduce and mitigate risk.

Risk and uncertainty

There is a difference between risk and uncertainty. Risk can be mitigated or planned for; possible issues and the probability of their occurrences are known (or should be known) by decision makers. Uncertainty on the other hand is a situation where no information is available to a decision maker in advance.

In business aviation transactions, manageable risks occur regularly and can therefore be anticipated in the transaction plan. Risk evolves to uncertainty when an event occurs which was unknown and unavoidable. The safe navigation of uncertainty requires the experienced team working together to deal with the unexpected in a timely and efficient manner.

Here are our 5 top tips on risks to look out for in business aircraft transactions:

1.    Closing formalities found wanting

Last-minute issues frequently arise because a required part of a transaction has been missed (often a seemingly small but vital element). At Martyn Fiddler Aviation, we are often contacted because the formal customs or tax elements on the purchase or sale of an aircraft have been overlooked. In most cases one party has assumed the other has performed this and now they need help to compete the transaction.

While this is just one example, accidently missing out a required part of a transaction will impact the timeline and costs; it creates uncertainty. To reduce this risk, ensure your advisors have current experience working on business aviation transactions. The rules, regulations and best practices are updated frequently and change from jurisdiction to jurisdiction.

If you do run into problems, contacting your specialist trusted advisors to assist and advise on the options available to resolving the issue is key. Good communication between all parties – explaining any possible or real delay – is also required to keep everyone well informed.

2.     EU Customs

Unexpected matters quite often arise from unexpected aircraft ramp checks. If a ramp check leads to customs problems, you need to ensure the crew understand what allegations are being made and what their rights are.

The easiest way to help prevent such issues occurring, or to stop allegations escalating, is to ensure you always carry the correct documentation on board in anticipation of such situations. However, this is a very technical area and if you come into difficulty you should contact your trusted advisors to get the support you need.

3.     Aircraft grounded and taxes imposed

It is not just in the European area that customs issues arise. An aircraft may frequently fly into a foreign customs territory without complication until the occasion it is unexpectedly boarded, and the crew are told that there is going to be a certain taxation levied.

If you are brought into a scenario like this it is important to remember where your experience limits lie and to call upon the relevant contacts in the industry to assist you. Once enlisted, relevant experts assisting will communicate with local authorities to understand the perceived issue and what is needed to secure the aircraft.

In these situations, time is of the essence, the longer the situation is left, the more the allegations start to solidify. Therefore, it is important to get advisors onboard ASAP who can not only translate but understand the terminology and also benefit from having a cultural understanding of how the situation should be dealt with.

4.     Politics and legal

Some unexpected events arise from global politics and sanctions are a prime example. These can cause serious problems; for example contractual payments may be suspended and assets frozen.

This will nearly always require additional, specialist advisors who really understand the sanction rules put in place, the politics behind it and the information that is required as well as any possible solutions. Timescales will likely be out of the hands of the aircraft owner – it will rest with any court or government involved.

While it is possible the situation will resolve itself, this is unlikely to be under the control of the parties involved. It will therefore be important for the team to consider whether a transaction needs to be suspended temporarily or indefinitely. For example, if sanctions prevent a party from continuing a contract or making re- payments, an event of default is highly likely to occur. The parties will need to consider ending the contracts and remedies available to them.

5.     The out of the blue scenarios

Sometimes an event happens ‘out of the blue’ causing an unexpected time delay; something completely out of the control of the transactional parties. For example, a power outage in Oklahoma City or adverse weather conditions in the location of original documents can prevent completion of the transaction.

Usually, these sorts of unexpected issues will only cause a short delay but in each of these cases the core team will need to identify how the immediate time delay will impact the closing mechanics and any knock-on effects. Understanding the movement in timescales and informing the parties that a short but unstoppable delay is occurring completely out of the hands of those involved is essential.

Lines of communications need to be established to make all relevant parties aware of the situation and discuss options for resolution and rescheduling completion.

Summary

It is important to understand your avoidable risks on aircraft transactions. Similar risk areas occur on every transaction – by knowing what these are you have made the first step towards managing your risk. Some risks are more manageable than others and there are some easy things you can do to help reduce risk. Experience shows that the unexpected happens all too regularly and while we cannot plan for such events, we can prepare ourselves to manage them in the best way possible.