Aircraft owner’s and users will always want a properly maintained aircraft and fully qualified (and experienced) crew; flight safety is an absolute and cutting corners can have dire consequences. Yet, the same attention and concerns are often overlooked when it comes to the transactional elements of the sale and purchase of a business aircraft (a significantly complex and expensive asset).

When something gets overlooked, it usually results in delays, additional cost, and a bad client experience. At its worst, failure to properly manage risks in aircraft transaction increases the opportunity for legal, tax and insurance issues resulting in significant financial and legal obligation for the client.

There is no such thing as a transaction without risk, however, it is possible to reduce risk likelihood with proper management and planning. We have identified 6 core areas which will help manage and mitigate risk exposure in business aircraft transactions:

1.     Know the mission

Knowing what your clients wants to achieve from the transaction will help in its smooth running. The client might be interested in the date on which their first flight can take place after delivery, or they might want to operate the aircraft in a certain way, or perhaps they are looking for the aircraft to generate an income from third parties or they want to operate it exclusively for their own use? All of this information is really important to know from the outset so you can plan around the client’s requirements.

It is also crucial for clients and their representatives to understand “must haves” vs “nice to haves” in order to manage expectations. For example the client may have a particular registration mark in mind, however, that registration will impact on the ability to operate third party charters. Therefore clear communication, organization and transparency at the start of a transaction is vital for its transactions success.

2.     A good leader

Buying a business aircraft is a complex process with unique attributes; it requires the expert advice of specialists who understand the context of a business aircraft transaction and have experience in dealing with them. A good leader coordinating the transaction can make or break a transaction.

An experienced and appropriate leader (usually, but not always, an aircraft transaction lawyer) will manage the transaction from start to finish and, importantly, will save the client time and money. The leader will extract from the client the mission, the timeframe, and any unique matters that need attention. Once the parameters are known, they will create a transactional map of what needs to be attended to by who and by when.

Business aviation transactions require a team of specialists, including relevant jurisdictional legal counsel, tax advisors, possible financial assistance, an insurer, and a corporate service provider; each will give advice at the appropriate times throughout the transaction. A good leader will carefully select a team who will complement each other and ensure the advice provided fits together in the transaction map. The leader requires an overall view of the transaction and will be able to keep the right people updated about what is happening at any given moment. They will also be communicating directly with the clients representative (or the client directly) throughout the transaction.

3.     International tax and customs liabilities

Aircraft will nearly always cross borders and regulatory and tax rules differ between regions and jurisdictions. Therefore, it is crucial to seek experts in the key jurisdictions involved in the transaction. It is a good idea to source jurisdictional advisors at the start of a transaction to navigate any restrictions or tax liabilities early. Remember that when considering the different rules of one jurisdiction to the next, it is not just the aircraft ownership that needs to be considered, the client’s existing corporate structure may need to be considered too.

4.     Plan with change in mind

Heraclitus said, “The only constant is change”. While this is true, most transaction managers would prefer the predictable.

Mission, team, time, and expectations can, for the most part, be controlled and managed internally by the client and their team of specialists. The environment however, whether it be political, social, or economic, carries heavy circumstantial risk which is unfortunately impossible to control in advance. Transactions can be impacted (or completely derailed) by changes in the environment; by keeping an eye on external events it may be possible to anticipate these to some extent.

Good transaction leaders will consider the future environment by asking:

• Will this aircraft and its proposed operation still be appropriate and meet the mission expectations in a year’s time?
• If changes are made to rules and regulations, does the transaction structure have sufficient flexibility to adapt?
• If something changes dramatically, what is the exit plan for the client and what will their exposure be?

5.     Tempus Fugit!

While there are circumstances in which adding people and money to a transaction can reduce timescales, this is not always true. Processes such as aircraft license applications, registration and other governmental involvement have timescales out of the control of commercial influence.

For this reason, it is important to understand points during the transaction which require set periods of time (or jobs to be completed in the right order). For example, while an aircraft delivery date coming forward may present an opportunity to a client to get their aircraft sooner, if there is insufficient time to have the ownership and registration correctly arranged then problems will arise. Without understanding this the client and team could get caught out and face financial consequences and delays. Being caught out adds time and expense in the middle of the transaction that wasn’t planned. It is crucial to know what elements of the transaction are time-bound in order to minimise risk.

Planning an appropriate transaction timeline (and understanding how long each element will take) will allow for a smoother transaction; then, if the unexpected happens, time will be available to positively react to the event.

6.     Compliance: Have the CDD ready to go

Just as the pre-purchase inspection (PPI) and aircraft title/lien checks are incredibly important, knowing who you are dealing with on the other side of the transaction is also vital. This is underlined by recent US investigations which demonstrate the need for client due diligence (CDD) across the industry.

The current regulatory environment means that nearly all parties to a transaction will need to provide CDD, so be sure to have it ready in advance. At a minimum the client should expect to be asked to provide a certified copy of their passport and a utility bill, however, depending on the client and their corporate structure more detail will be required.

Clients should also expect to be asked and provide evidence to establish the legitimacy of funds used to buy the aircraft; do not be surprised or offended when questions are asked about source of wealth and source of funds. It is important for all parties to comply with international legislation in this area and increasingly proof of any payments made may need to be provided.