How to safely land an aircraft transaction

The sale and acquisition of an aircraft are similar, but not identical, to that of any other asset. However, there are particularities that need to be taken into consideration when dealing with an aircraft, as it is an asset constantly travelling between different jurisdictions.

Prior to entering into discussions surrounding the sale and purchase of an aircraft, the parties should sign a non-disclosure agreement (NDA), by which they agree to keep all shared information confidential. This step is however not mandatory and may be foregone if the parties have already agreed upon the terms and conditions of a potential sale and acquisition.

As with a traditional asset acquisition, the first official step in an aircraft acquisition is the preparation of a letter of intent (LOI), a non-binding agreement by which the purchaser informs the seller of its intent to purchase the aircraft, and under what terms and conditions.

Once the LOI has been signed by both parties, the purchaser will conduct a due diligence review of the aircraft and the seller. At this stage, a list of documents and information required to complete the due diligence will be communicated to the seller, who will be obliged to collaborate and provide such information. The delay to complete said due diligence is set out in the LOI and the purchaser will need to inform the seller of its decision to move forward with the transaction, or not, before a specific date. It is during the due diligence process that the purchaser will conduct a technical inspection, meaning it will send a mechanic to inspect the aircraft, check its maintenance history, airworthiness as well as compliance with the manufacturer’s and other aviation authorities’ service bulletins.

Along with the standard corporate documents authorizing both the seller and purchaser to enter into the transaction, the main and most important document is the Aircraft Sale and Purchase Agreement (ASPA). The principal differences between an ASPA and classic purchase agreement lie within the representations and warranties, that must comply with all the laws and regulations in effect in aviation, which, for the most part, are the result of international treaties.

Other necessary documents specific to aircraft acquisitions include a bill of sale signed by the seller and an acceptance certificate signed by the purchaser. Such documents are required by the aviation authorities (Transport Canada in Canada, the Federal Aviation Authority in the USA, and EASA in Europe) and the parties must forward copies to the relevant authorities after the closing of the transaction.

As long as the parties are in member states that have ratified the Cape Town Convention, formally known as the Convention on International Interests in Mobile Equipment ¹ adopted on November 16, 2001, at Cape Town, and its related protocols such as the Protocol on Matters Specific to Aircraft Equipment², they must update the International Registry of Mobile Assets after the closing of a transaction, to declare their international interests.

Finally, it is important to note that as the purchaser and the seller are not always situated in the same country, it is crucial to consult tax specialists and confirm the consequences and fiscal impacts that the transaction may have on each party in both countries. For example, the purchaser might have a 30-day window after the closing date of the transaction to remove the aircraft from the seller’s country or state, in order to avoid paying taxes in that country or state applicable to the said transaction.

At AVENS, we can assist you with all the steps and all the documents legally required to purchase your aircraft.