To purchase of an aircraft or number of aircraft is not an easy task. Very basic steps to purchase an aircraft are given below
Step 1: Decision
Step 2: Evaluation
Step 3: Completion
To purchase an aircraft, pre-bye evaluation is most important to make sure the current valuation of the asset.
Pre-Buy Evaluation of the aircraft
To purchase an aircraft is not an easy task, it require a lot of diligence and consideration form buyer. Seller of the aircraft will try to convince the buyer that he has the best aircraft at lower price in market. It’s a responsibility of the buyer that he makes sure, if this or these aircraft are meeting his requirements or not.
Buyer contacts the seller for aircraft specification summary to verify the current status of the aircraft and meeting his requirement to proceed further.
To purchase an aircraft buyer require a team of experts (legal and technical personal) for pre-buy evaluation of the aircraft. For pre-buy evaluation buyer may have his own team or contact 3rd party for the same on his behalf.
A pre-buy evaluation consists of the following major elements:
This is very essential and primary element to evaluate an aircraft. Seller need to provide following documents to evaluate the current build status
On the basis of these documents technical person can determine the base value of the aircraft as on date. On the basis of technical person feedback buyer can take further decision to sign a LOI (letter of intent).
LOI is usually legal binding between both parties (seller and buyer). When a buyer need to show the seller that he is really interested and ready to move forward. Buyer must pay a deposit and or commitment fee to the seller (via escrow agent) as consideration for the seller to remove the aircraft from the market. Such security deposit is refundable only in certain circumstances, typically subject to the condition precedent of the finalized sell agreement.
The letter of intent should contain the following key elements:
Aircraft operational location is an essential element for the consideration of aircraft evaluation.
Aircraft inspection is very essential to evaluate the current status of the aircraft. If buyer missed to identify any hidden damage / accident / incident etc., on aircraft or remaining overhaul life of installed components or remaining life of life limited components. So the buyer can minimize the chances of extra expenses.
For such kind of inspection of aircraft buyer needs assistance from group of an expert. Aircraft inspection is a combination of aircraft physical inspection and aircraft records inspection.
The designated person has the responsibility to identify and evaluate the physical condition of an aircraft on behalf of buyer. Aircraft physical inspection includes the following
The value of an aircraft can be affected by missing records or hidden damage to the aircraft. Value of aircraft lost 15-20% due to missing maintenance documents. When you are dealing with a multi-million dollar aircraft even 1% is significant.
Aircraft inspection will provide the complete history and maintenance status of the aircraft to buyer.
Buyer need to know that seller contract / agreement with OEM / Tech Pubs / Vendors and conditions mentioned in those for owner change. Is all the contract / agreement easily convert to buyer or not?
If aircraft is / are in lease with any operator, so buyer needs to review the lease agreement. In lease agreement buyer need to review the following:
On the basis of all these element’s feedback and observations, best negotiation would be possible in buyer’s favor.
-By Varun Shanker (India)