The acquisition of either new or previously owned aircraft is a significant transaction. Which course a buyer might choose will be largely dependent on their budget and how they want to use the aircraft. In either case, though, modern aircraft values typically run from a low of six figures to a high of multiples of seven to eight figures. For that reason, when planning such a significant investment, a prospective buyer must first perform their due diligence on a whole range of new things they need to know. One of those things is how and when to submit an offer to purchase an aircraft, in writing, which if accepted, will place legal and financial obligations upon the prospective buyer.
There are many contingencies which need to be considered before committing to making a written offer, and ideally, the way in which a prospective buyer wants to handle those contingencies are expressly included in the offer. Getting the deal desired is important, but so is avoiding unwanted liabilities. Contingent offers help reduce the risk of financial loss if issues arise with the aircraft, the buyer or the seller.
How contingencies work
A contingency is an express provision describing a circumstance under which the prospective buyer will or will not have to close on the deal. Most large transactions involving capital equipment or real estate include contingencies which are addressed during the negotiations for the purchase and sale. Among other things, contingencies allow for the penalty-free cancellation of a transaction in certain scenarios.
Contingencies that are common in aircraft transactions include a description of essential documentation to come with the aircraft, the nature of the maintenance history, the presence of any damage history, the avionics and special equipment to be included, the certification status of the aircraft, the time, place and scope of any pre-purchase inspection to be performed, or the approval of financing, to name just a few. Test flight contingencies may also be warranted. Inspections frequently reveal issues with an aircraft which may require a major expense to repair. Carefully worded language describing these contingencies in the offer letter can protect those hoping to acquire an aircraft free from defects or unplanned expense.
Generally, those listing an aircraft for sale have a common law obligation to disclose known defects. Best practices for sellers and brokers often include examination of the maintenance certifications to verify the aircraft condition prior to listing. However, some people may not maintain their aircraft in accordance with sound judgment or the aviation regulations. Some people may perform poor quality maintenance which can only be identified by a thorough pre-purchase inspection. Buyers should never assume that an aircraft is truly in an airworthy condition without having a thorough inspection and flight test performed on their behalf.
While certain contingencies may reduce a seller’s interest in a buyer’s offer, their inclusion is crucial to protect those contemplating such a major investment. Putting together offer letters customized to the type aircraft and deal preferences during the negotiations of an aircraft acquisition can make the transaction into a successful and satisfying one for the careful buyer.