Don’t Be the One to "Split Tens"

By Stewart Lapayowker | January 15, 2016
I am often asked by a client buying or selling an aircraft “how quickly will this deal be done?” or ” how much will this cost?” My answer is always the same:  If you can tell me how everyone in the deal will behave, I can tell you generally how long it should take and how much it should cost. But the success of an aircraft transaction, like any transaction, is dependent upon the participants being experienced, practical and level-headed. If you’ve ever played Blackjack, you know that there are certain “rules” that you’re supposed to follow. If the dealer is showing a card on top of a 6 or less (we assume the dealer has a 10 underneath), because the dealer needs to “draw” a card until it has 17, it is likely that it will  go over 21 and “bust” i.e. the players will win.  So, the rules that players generally follow are : (a) don’t hit (take a card) if the dealer is showing a top card of 6 or under, (b) double down if you have a 10 or 11 and the dealer has something less than a 10 or face card on top, (c) always split aces, and (d) never split tens (it’s likely a winning hand). The theory goes that if everyone at the table plays by “the rules” then the odds are better that the players will win.  If there’s a player at the table that is doing abnormal things, like splitting tens, or hitting (taking a card) when the dealer is showing 6 or lower, then that player will mess up the odds at the table, and the table will lose more often.  Heaven forbid you have 2 players like that, and the table can kiss its chips goodbye at warp speed. How does Blackjack have anything to do with aircraft transactions?  Simple. In an aircraft transaction, you typically have the following players at the table: (i) buyer, (ii) buyer’s broker, (iii) buyer’s counsel, (iv) seller, (v) seller’s broker, (vi) seller’s counsel and (vii) the aircraft.  Interestingly, a blackjack table holds 6 to 8 players, but that would be too easy.  The issue is that if any of the 6 aircraft “players” are inexperienced or behave oddly, then the transaction takes on less than normal process, with much time and energy being devoted to education, discussion and posturing.  This can add significant time and expense to an aircraft transaction. So if you or one of your teammates is thinking about “splitting tens,” and the other players are telling you not to (or looking at you funny) then maybe it’s time to admit that you need help from an experienced player, or perhaps leave the table until you do.  Otherwise, your chips will be gone, and so will the deal that you desperately wanted to close.       Read More

Sydney Macca, Esq. Joins the Firm

By Stewart Lapayowker | August 6, 2014

We are pleased to announce that Sydney L. Macca, Esq. has joined our team. Sydney has a unique perspective on business aviation having served as the Manager of Flight Operations for a Part 91 flight department with operations in over 100 countries, and will be a valuable resource.  She also served on the NBAA Security Council and on the Gulfstream Advanced Technology Customer Advisory Team and Customer Advisory Board for the Gulfstream 650. Sydney has particular experience with creating and implementing pandemic and business continuity planning, as well as enterprise risk management initiatives with particular emphasis on emergency response plans. Sydney has also represented companies in FAA enforcement actions relating to compliance with hazardous materials regulations. Please welcome Sydney when you have a moment. Sydney can be reached at

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Don’t Be Emotionally Compromised

By Stewart Lapayowker | July 4, 2014

he film Star Trek (J.J. Abrams, dir., Paramount Pictures, 2009) presents an alternate timeline in which Spock is Captain and Kirk is First Officer. Kirk taunts Spock in an effort to upset him and, after beating up Kirk, Spock realizes he’s lost control of his emotions. He announces: “Doctor, I am no lon-ger fit for duty. I hereby relinquish my command on the grounds that I have been emotionally compromised.”

Even with almost 25 years of practice handling corporate air-craft purchases, I’m still surprised by how often the process takes on a very personal, emotional tone unlike that of any other business asset purchase. The issues involved in purchasing a corporate aircraft are varied and complex, including the drafting and negotiation of transaction documents, structural and tax issues, among others. Although it would be ideal to address these issues before the client’s decision to acquire the aircraft, most of the time our first meeting is to work on the letter of intent or purchase agreement, because the target aircraft already has been identified.

I routinely explain to the client the key issues to be addressed. Will it be a “hard deal” (if the seller fixes the discrepancies, buyer is committed to buy and the deposit is immediately at risk upon signing the purchase agreement), or a “soft deal” (after the inspection, will the buyer have an outright rejection right, and therefore the buyer’s deposit isn’t at risk until technical acceptance)? What should be the deposit amount? Where will the inspection take place? What are the basic delivery conditions? To what extent is the seller obligated to repair discrepancies (only airworthiness/safety of flight, or others)? Is the seller of the air-craft the registered owner or will the buyer purchase in a “back to back” transaction from a third party?

Many of these issues are driven by the objective analysis of the leverage of the parties in the transaction. Is the aircraft in de-mand? Have prices been falling? Is it a buyer’s or a seller’s mar-ket? Was a transaction on the aircraft recently terminated?

Assuming the buyer has no previous experience with an aircraft acquisition, one would think that the interaction with aviation counsel would be objective, with the client listening, asking questions, and making rational decisions. However, an aircraft acquisition can have a strong subjective emotional component. Often, I review the letter of intent, explain the issues, get buy-in on needed revisions, and then hear a telling question: “If we go back with these revisions, do you think we’ll lose the deal?” I usually reply: “It’s possible, but more likely they’ll respond with their concept of the transaction, and then we’ll discuss it.” The document is distributed, then comes back with some revisions.

In the meantime, the client has climbed aboard the aircraft, smelled the leather seats, admired the interior, and spoken with the seller’s representative. I’m convinced there’s some hypnotic drug in the leather, because inevitably, the next time we meet to discuss the letter of intent or purchase agreement, I hear the dreaded tell-tale words: “I want this aircraft,” or “I understand, but that result is not going to happen. I looked them in the eye and I trust them.”

A transactional lawyer’s job is to explain the risks; the client’s is to evaluate them and make the decision. Aircraft transaction decisions have a high economic impact. To the extent that you are affected by emotion, there is another risk: a client may agree to sub-optimal terms, blinded by having “felt” and “experienced” the aircraft.

If you feel afraid to walk away from the aircraft you “must buy,” or more importantly, tell the aviation professionals you’ve engaged to help that you’re now willing to assume all risks, stop. Take a step back and consider whether you are “emotionally com-promised” and should relinquish your command. Impatience will cost you money. So will emotion.

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NBAA Tax, Regulatory and Risk Management Conference starts the Sunday BEFORE NBAA Convention

By Stewart Lapayowker | August 3, 2013

If you will be attending the NBAA’s annual convention this year in Las Vegas, be sure to attend the Annual NBAA Tax, Regulatory and Risk Management Conference.  The conference is an in depth review of the major issues facing aircraft owners and operators. Why can’t Part 91 operators operate in a single purpose entity?  How can the IRS take the position that even Part 91 management agreements are subject to FET?  What’s the difference between personal business use and personal entertainment use of business aircraft and why does it matter?  How are companies addressing EU VAT issues in light of the elimination of the UK zero rated import?  These issues and many others of interest and concern are addressed at the conference.  I’ll be moderating the international panel and addressing EU-ETS, alternative solutions to the VAT issue, and others.

Click here for the brochure, and remember, if you are making your reservations, be sure to block out the 2 days before the convention (October 20 and 21) for the NBAA Tax Conference.

I look forward to seeing you there.

Regards. SHL.

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Flying to or Within the EU? There Still May be Ways to Address VAT.

By Stewart Lapayowker | May 13, 2013

U.S. registered aircraft operating within the UK or the EU are subject to being assessed a value added tax of up to 26% of the value of the aircraft.  This is generally due to the fact that the UK/EU view typical Part 91 operations as “commercial” under their rules.  While, in the good ‘ole days, large jets could be imported at a zero rate of VAT through the UK for free circulation, under pressure from the EU, the UK eliminated that process of import.

Can a permanent import for free circulation still be accomplished on a U.S. registered aircraft? The answer, as usual, is “it depends.”  One alternative involves  an import into Denmark.  Other alternatives involve establishing a connection with a tax-neutral jurisdiction such as the Isle of Man.  It is much more difficult, however, to plan for the import after the aircraft is acquired into its U.S. tax-focused structure, since many of the requirements of the import involve interrelationships with the jurisdiction. So, as always, plan ahead if you think that the aircraft will be spending time in the EU or the UK.  We have had the opportunity to assist clients with coordination of these imports, including being in attendance with the aircraft overseas for the import, and look forward to being of service.  We will be in attendance at the ICM Aviation Conference on the Isle of Man in June and look forward to seeing you there.





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Selling Your U.S. Registered Business Jet? Don’t Forget to EXPORT FROM THE UK!

By Stewart Lapayowker | April 20, 2013

For many years, large U.S. registered aircraft were routinely imported into the UK at a zero rate of VAT  for free circulation in the EU.  It was a relatively simple process and the cost was minimal compared with the exposure to VAT one had for operating within the EU (around 26%).  However, about 2 years ago, under pressure from the EU, the UK discontinued that type of import.  It is not uncommon when closing on a sale of an aircraft that nothing is done about the UK import completed many years earlier.  So, what should be done?  Technically, the prior importation needs to be cancelled, but more accurately, the aircraft needs to be “exported” from the UK upon sale of the aircraft.  Luckily, the UK does not require that the aircraft be in the UK in order to accomplish the export.  So don’t forget to add a UK export to your closing checklist!


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The 2-Minute Warning and Business Aviation

By Stewart Lapayowker | January 13, 2013

A friend of mine asked me if I watch professional basketball on TV. My knee-jerk reaction was to joke that I only watch the last 2 or 3 minutes because that’s when the game is exciting and is won.  Then it occurred to me that some think that the closing call of a business aviation transaction is where “it all happens” and what an unfortunate perception that is.  Like basketball, or any other sport, the game is won long before the last two minutes or the two-minute warning.  There is planning, hard work and during  the 3 3/4 quarters before the end is when each team is studying, learning, and planning for the end-game. You can see during a Heat game that Lebron James and Dwayne Wade are studying their opponents, testing the defense for weaknesses, and seeing where their opponents’ strengths are, so that when the time comes, they can execute their strategy and score.   If an aircraft purchase agreement is signed, and a  business aviation transaction goes smoothly at the end (we like to say “closes with a fizzle”), with relevant registration, state tax, federal tax, DOT, FAA and other issues addressed,  it is only because a great deal of work has been done, and experience brought to bear, to plan for it.  The old practice that you hear from some of just signing a “form” purchase agreement and delivering a bill of sale are long gone.  Business aircraft transactions are complex, and require significant attention to many different issues.

So, when I’m asked again if I watch basketball, my answer will be “I may only watch the last couple of minutes, but I appreciate that it took 58 minutes of blood, sweat and tears to get there.”


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Your Plane Will Punish You…

By Stewart Lapayowker | January 7, 2013

An article written by Mr. Lapayowker appearing in the JSSI Airways newsletter is available here Airways Article. The article addresses the benefits of a consistent maintenance program and the impact that it has on the aircraft during the re-sale process. It also contains other helpful hints.

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The FAA Aircraft Registry is Closed, HOW CAN WE CLOSE?

By Stewart Lapayowker | December 21, 2012
At the last moment, the FAA announced that the registry would be closed on December 24.
But we had a closing!  What do we do?
In the last week of the year we often receive calls from clients that have just determined that they need to close on the purchase or sale of their aircraft by year end.  Sometimes these transactions even pop up a day before New Years, sometimes Christmas Eve.
Many times clients are under a mis-impression about what it means to “close”.  For example, we often hear “but the FAA filing window is closing in 5 minutes and we won’t have submitted our bill of sale to the window by then” or “there’s just no way we can get our documents to Oklahoma City by Friday”.
Of course, the most conservative approach is to have your local counsel or title company run a search of FAA and International Registry records for liens immediately before dating and submitting your bill of sale and registration application to the FAA at the window.  But what if title must under any circumstances transfer on a day that the  FAA is closed?
It may surprise you that the effectiveness of a transfer is not governed by Federal law or FAA regulations.  The effectiveness of a transfer is governed by State law.  When is there an effective sale or transfer?  The State law that governs sales of goods is the Uniform Commercial Code in nearly all jurisdictions, and the UCC has provisions about what makes an effective “sale.”
First, for goods in excess of $500, there must be a contract in writing that specifies the quantity of goods to be sold.  The Florida UCC also provides that “Unless otherwise explicitly agreed, title passes to the buyer at the time and place at which the seller completes her or his performance with reference to the physical delivery of the goods.…”  Typically, your purchase agreement will explicitly provide when title passes, for example upon the dating of the FAA Bill of Sale (or Warranty Bill of Sale) and delivery of the bill of sale to the Buyer (or release to the escrow agent on behalf of the Buyer), which is typically authorized after funds are paid and the delivery receipt executed.

A bill of sale should contain text to implement the conveyance as well as the names of the parties, price or consideration being paid (price is typically found in the purchase agreement and that’s fine), description of the good being sold, and the date.

So, let’s say that we must close on Christmas Eve and the FAA just announced they’ll be closed.  Can you still effectively transfer title to the aircraft and close your transaction?  Of course.  If the bill of sale is dated and delivered to the buyer, and the other requirements set forth in your purchase agreement for title transfer are complete, your transaction is closed.  And what if you don’t get that done on Christmas Eve, can you do it on Christmas Day?  The law doesn’t take a holiday.  The same rules will apply.

The foregoing assumes of course that the parties are comfortable with the lien and registration status of the aircraft (perhaps searches were done very recently).

We wish you a happy and healthy New Year and look forward to serving you right up to December 31 and again in 2013.
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The Holiday Season is Here — Let’s Be Careful Out There!

By Stewart Lapayowker | November 23, 2012

December is a popular time to take delivery of new or pre-owned aircraft.  Some buyers of new aircraft may also be anticipating bonus depreciation this year.  But the holiday season also draws aircraft owners into the trap of using their newly-acquired aircraft for non-business entertainment flights and perhaps for international trips.  It is very important to be careful about  this type of use  in 2012 so that any tax planning that you have done (e.g. bonus depreciation, entertainment disallowance) will not be adversely affected by actual flight operations.  This can be especially surprising if you acquire an aircraft in December.  Think about it, instead of trips spread over 365 days and the ability to “catch up” with business flights, every day of December works out to be about 3% of the entire tax year of 2012 with respect to the aircraft!  So, if the aircraft will be out of the country for 17 days in December, the aircraft has arguably been used predominantly outside of the U.S. during 2012 and ineligible for depreciation.  If there is significant entertainment use in December,  the entertainment disallowance can have a severely adverse impact on the deduction you thought you had.  Let’s take an example of a new aircraft qualifying for 50% bonus depreciation that is acquired on December 15, 2012.  The entire tax year is 16 days.  You can see how each use of the aircraft can have a significant impact on any planned tax benefit.  Conservative advise is to only fly business trips with aircraft newly acquired in December 2012.  Of course, if you have owned your aircraft since January 1, 2012, it’s a good idea to take a look at your non-business and international utilization to see where you are. So let’s be careful out there!

Best wished for a happy and healthy holiday season.


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