An offer to purchase an aircraft customarily includes a variety of terms, chief among them the purchase price that the buyer will pay and a list of technical delivery conditions (inspections current, airworthiness directives complied with, complete records, etc.). During the pre-purchase inspection, the inspection facility performs an independent evaluation of the aircraft and issues a report identifying airworthiness or other issues that it found. Then, if the buyer accepts the technical condition of the aircraft subject to correction or repair of discrepancies from the agreed upon delivery conditions, typically the Seller is obligated to repair them at the Seller’s expense and return the aircraft to service. The delivery conditions consist of the fundamental assumptions that the buyer is making when the buyer agrees to a price for the aircraft. The buyer is assuming that, for this price, the condition of the aircraft will satisfy the delivery conditions and be good to go at closing. Take the example of a buyer that offers to pay $10 million for an aircraft. The seller responds to the offer asking that the seller have the right to terminate the agreement if the seller doesn’t want to do the repairs or the repairs exceed a certain dollar amount, so the buyer is left with the decision whether to move forward and invest in the inspection with the potential of paying for repairs that the seller does not want to do, or terminating. That’s just not the deal. Why would a buyer agree to spend money on an inspection only to have the seller decline to repair the discrepancies from the agreed upon delivery conditions? And is it fair for the buyer to commit itself to buy the aircraft only to have the seller decide not to (practically) sell? The seller may be thinking “well, if I spend that money (on the discrepancy repairs) then I can sell the aircraft to someone else for more!” Um. Yeah. Nah. That’s not how it works. Any other buyer will only pay what the plane is worth in the assumed delivery condition. So that logic breaks down. But the practical problem for a seller who takes these positions is that once airworthiness discrepancies are discovered, the repair facility will not return the aircraft to service and allow it to leave until the seller spends the money and the issues are corrected. So, Seller needs to spend the money anyway! Any formal appraisal (whether for financing or otherwise), and valuation resources (such as vRef or JetNet) assume that the aircraft is in an airworthy condition, current on maintenance and without damage as a fundamental basis for valuation. Change the assumption, and presumably a buyer would offer less. The more that the parties can be educated in advance, the more efficient the market will operate and the quicker deals will come together.

It seems like every time there are new entrants to the aviation market (in this case driven by the correct perception that private aircraft are safer than airlines when it comes to exposure to COVID-19), the old shenanigans raise their ugly heads. These new seekers of safe flying  are not experienced in business aviation, including the regulatory requirements and limitations of Part 91 operations, the true cost of owning, operating and chartering aircraft, and what it really takes to operate safely. Remember the days of ten sham dry leases and coincidentally one crew? Or the “home-made fractional” programs? Or the “block hour” arrangements for a Part 91 aircraft? Or the non-transparent aircraft managers or management companies who don’t (or can’t) produce backup for expenses or legible expense reports?  The thing is that, to a novice in business aviation who is applying his or her own business experience, these arrangements seem perfectly reasonable and it’s reasonable to rely on people who seem to be confident in their knowledge because they’ve “done it like that forever.”  We hear, “It’s really a good deal if you look at the numbers.” But that sentence shouldn’t have a period at the end of it. It should continue “…except you’re not getting the tax deduction you thought you would get, the aircraft won’t be worth what they say in 3 or 5 years, you’re responsible for scheduled and unscheduled (read that as “when it breaks”) maintenance so you don’t really know the “cost”, there’s no guaranty of charter hours, you have no idea of what the current condition of the aircraft is, you’re in operational control and, oh, by the way, … it’s pretty likely that it’s illegal.”  How many know, for example, that a single purpose entity is not eligible to operate an aircraft to carry passengers unless it has an air carrier certificate? Yeah, I thought so. It is important that new entrants to the private aircraft market, whether as users or buyers, have a good first experience so they stay private aircraft owners or passengers for many years. This benefits the customer and grows the industry. But if they sour on it on the first attempt, the industry loses that customer (and probably anyone that they speak with about their experience) forever.  This is not the time to make a fast buck. This is the time to educate and welcome these new entrants into what could be many years of contribution to the business aviation industry.

Many of you operate aircraft 12,500 pounds MTOW or under (piston aircraft, small aircraft and helicopters).  If you utilize any of the provisions of FAR 91.501 (e.g. time sharing agreements, inter company chargebacks under b(5), etc.), as a member of NBAA you are entitled to use FAR 91.501  under the FAA’s Small Aircraft Exemption even though you would otherwise not qualify due to the size of your aircraft.  The FAA has imposed an additional requirement as a condition to using the NBAA Small Aircraft Exemption. It is now required that you confirm your “joinder” to the exemption by sending a message to FAA confirming your NBAA membership number and agreeing to comply with the requirements of the exemption.  The process is simple and the NBAA has a portal on its web site to digitally submit the joinder. As a reminder, if applicable, the operator should be a member of NBAA (not necessarily the owner) in order to qualify. If you are not currently an NBAA member, membership can easily be arranged on the NBAA site.  If you are utilizing (or expect to utilize) 91.501 in connection with the operation of a small aircraft, we recommend submitting the joinder as soon as practicable.  Regards. SHL.   Link to the NBAA submission tool

Plane Talk Radio, a podcast hosted by Stewart and available on blogtalkradio.com, dropped a new episode on April 22, 2020 entitled Business Aviation in the Covid19 Environment – Part 1.  Part 2 airs April 24, at 3:00pm Eastern or it can be listened to at your convenience.