(Part 5 of 5)
What to Expect in the Purchase Process
Here is a step-by-step general outline of what you can expect in the acquisition of an aircraft. The order sometimes changes depending on the situation.
1. Ask yourself questions: What do you want? What do you want to spend? What is your mission? etc.
2. Interview buyer’s agents to represent you, then make a decision and hire one.
3. Expect to sign an agency agreement giving the agent the exclusive right to represent you for a period of time and establishing the fee you will pay as well as any expenses that will be your responsibility. In the agreement, agents should also list their responsibilities and capabilities.
4. Ask your agent what to expect and when the process will begin to move forward. Give your agent time to do the job but insist on receiving progress updates.
5. Place a refundable deposit into escrow. This gives your agent the power to negotiate on your behalf and conveys the seriousness of your intent.
6. Refer anyone who calls you directly to your agent for the duration of the purchase process. You could easily and unknowingly undermine the groundwork your agent has laid.
7. Allow your agent to contact sellers. Don’t call any aircraft seller during the process but discuss available aircraft with your agent and which sellers your agent should call. I’ve seen feeding frenzies over a single buyer who got all of the sellers stirred up. Often the sellers see this as a sign of increased market strength, so they will hold firm on the price your agent is trying to bring down for your benefit. Your agent should treat you as a partner in the process and should not hesitate to make recommendations to you on aircraft, negotiation tactics, and offers.
8. Look for comparison reports. Your agent will research the worldwide market and narrow the options to the very best three or four aircraft, usually putting a description of the aircraft on a spreadsheet.
9. Prioritize your preferences. Based on your individual requirements and discussions with your agent, you will decide which aircraft to pursue first, second, etc., and come up with an offer.
10. Make an offer. An offer letter or letter of intent (LOI) will be prepared and submitted to the seller.
11. Expect negotiations. A counteroffer or other response should be expected within the period outlined in your offer. Negotiations will lead to an agreement or a decision to move on to another aircraft.
12. Be prepared for one to get away. Don’t be surprised if an aircraft or two on your top three-or-four list sells. Often the aircraft you are most interested in is going to be sold quickly … and you may not be the buyer.
13. Title research. Once an agreement is reached or looks favorable, your agent will order a title search, chain of title, and an IR and 337 search. A 337 is a required FAA form for any major repair or alteration of an aircraft. The IR requirements can cause a delay in closing; so, the search should be performed early in the process.
14. Initial inspection. Prior to the execution of the formal sale and purchase agreement, your agent may send a technical representative to visually inspect the aircraft and conduct a cursory logbook review. Doing this is much less expensive than putting the aircraft into pre-purchase and then rejecting the aircraft for a reason that could have been easily identified beforehand.
15. Formal agreement. A formal sale and purchase agreement is executed if the technical rep does not find any major issues and the title search, chain of title, and the IR and 337 searches lead to a positive assessment.
16. Demonstation flight. A demonstration flight may be in order if you’ve never flown in the aircraft make and model. The flight would be at the buyer’s expense.
17. Expect a test flight. A test flight, including a check of the avionics, is performed in-flight prior to the pre-purchase inspection.
18. Prepurchase inspection performance. While there is more than one way to handle “squawks” – the aircraft items in need of repair or adjustment - typically the seller will pay to remedy the “airworthiness, major systems, and safety of flight” items. Anything falling outside that definition is the buyer’s responsibility. Again, each deal is different; so, work with your agent.
19. Post maintenance test flight. After the repair of the maintenance items, a post-maintenance test flight is performed for the benefit of the buyer and at the buyer’s expense. This flight will verify that the aircraft is in proper working order prior to your acceptance of and payment for the aircraft.
20. Aircraft acceptance. You will accept the aircraft upon in-flight verification of operation and confirmation that the logbooks properly reflect the agreed upon inspections.
21. Insurance bonding. Insurance should be bound on the aircraft at this point or sooner but certainly should be arranged and activated with a call to your agent.
22. Initiate closing. Both parties must give authorization to the escrow agent to initiate closing (filing of the documents and disbursement of the funds).
23. Aircraft delivery. Delivery will often occur after closing. This is a very important tax issue and both parties typically are sensitive to it during the initial negotiations.
Are there any other considerations? Absolutely. They include Certificate of Airworthiness (C of A) issues, import/export matters, holdbacks, documentation, engine/parts/avionics programs, aircraft rejection, deposit disposition, and on and on. Each deal requires flexibility and experience to smoothly navigate through the aircraft purchase process and calmly handle any surprises that may occur.
Buying an aircraft should be an enjoyable experience. By getting the help of a great agent and by knowing what to expect, it can be.previous installment)