Whether you are an existing owner of a private jet seeking a new aircraft, or someone looking to acquire your first private jet, the “pre-buy” process can be overwhelming. From our experience with dozens of private jet transactions and closing deals for jets from all around the world, here are some tips that can help you get familiar with the private jet pre-buy process so you can cruise through it with comfort and confidence.
Locating Your Target Aircraft
Once you have identified an aircraft that meets your criteria, it must be visually inspected and records reviewed to determine if you want to take it to pre-buy. As part of that process, the seller provides all records and the condition of the aircraft is assessed. We travel to the location of the target aircraft and inspect it visually – looking at both the internal and external condition. When reviewing, we also take a detailed look at the consistency of the records, in particular checking for damage history.
Drawing up the Paperwork: The Letter of Intent and the Purchase Agreement
When you have narrowed down your search to the jet of your choice, then the buyer works with their attorney to develop the letter of intent (LOI). This document should provide broad outlines of the terms of the transaction. The LOI will form the basis for what you will get in the definitive purchase agreement. Depending on the seller, execution of a LOI may be a prerequisite for a visual and/or records inspection of the aircraft.
Before proceeding to the formal pre-buy inspection, most sellers will require execution of the definitive purchase agreement. Working with an attorney, the buyer needs to detail in the definitive agreement the specifics of the purchase, describing the scope of the inspection, the required condition of the aircraft at delivery from the seller, each party’s obligation in placing the aircraft in such condition, and the facility and location for the pre-buy inspection. When selecting the facility, consider one that is close to you, has a strong reputation, and has relevant experience with your type of aircraft. You should also consider any sales or use tax issues based on the location of the facility. As the buyer, you will also need to have an agreement with the facility – covering indemnity, warranty, and the facility’s performance obligations. Be very careful in considering any disclaimer or waiver of warranty in the facility’s agreement.
On-Site Testing Phase and “Acceptance” Flight
Once you have the facility booked, the inspection can take several weeks, depending on the areas of the jet to be inspected. One of the most critical tests will be the two-hour “acceptance” flight to check out the aircraft. We recommend that the buyer bring several technicians with expertise in mechanical, electrical and interiors, as well as a non-flying pilot who can observe the flight characteristics of the aircraft.
Upon completion of the “acceptance” test flight and the pre-buy inspection, the team will share any discrepancies they observed and furnish that list to the seller. The list may include things such as a non-working toilet, problems with avionics, corrosion, etc. Typically, the seller is responsible for repairing any items on the list as per the purchase agreement.
Closing the Deal
Moving into the final stage of pre-buy is the acceptance, escrow and closing. Upon completion of the pre-buy, the parties will finalize the list of any discrepancies. The basis and obligation of each party with regard to the discrepancies should have been addressed in the definitive purchase agreement, but there can be technical disagreements as to particular items, so having an experienced team on your side is important.
As the buyer, you will be registering and assuming the transfer of the title. If the aircraft is registered outside the United States, it must be de-registered from its foreign registry and re-registered and will need a new certificate of airworthiness issued by the FAA.
After the appraisal and financing documents are in order, the closing documents will then be signed and filed with the FAA. Typically, the aircraft is then moved to a tax-neutral spot for the closing, if it isn’t already in a tax-neutral location. As the buyer, you will retain a copy of the completed application for registration, which will serve as authority to operate the aircraft in the United States for up to 90 days. You should receive a permanent registration document some 30 days after closing, depending on the FAA’s workload. Until then, no flight can leave U.S. airspace unless a temporary certificate of registration, a so-called fly-wire, is obtained from the FAA.
Now that you are the new owner of a private jet, you can enjoy the skies and feel confident in the successful completion of your pre-buy. A good understanding of the process can help you be prepared for any turbulence and keep things on course.
Ralph Michielli is Chief Operating Officer (COO) of ExcelAire, a worldwide private boutique jet charter and management company. With more than four decades of experience in private jet aviation, Michielli helped launch ExcelAire in 1993 and currently oversees its maintenance and day-to-day business operations. Before being named COO, Michielli was Vice President and Director of Maintenance, and managed private jet maintenance at ExcelAire. Headquartered at Long Island MacArthur Airport (KISP), ExcelAire is a Hawthorne Global Aviation Services company.
John Copley, principal with Garofalo Goerlich Hainbach PC (GGH), specializes in sale and lease transactions, operational regulatory advice, and due diligence for the acquisition of air carriers, manufacturers and repair stations. He earned a B.A., magna cum laude, from Wake Forest University and his J.D. from the University of Virginia School of Law. John was selected by ALM as one of Washington DC & Baltimore’s Top Rated Lawyers.
