THE DOCKET
BUYING AN AIRCRAFT: A SHORT GUIDE Giulia Mauri presents
some of the main legal
issues that prospective buyers will face when negotiating the contractual documentation needed to secure the purchase of their aircraft
A
s all buyers are aware, the purchase of an aircraft is complex. It not only involves technical choices as regards the type and the specifications of the aircraft, but the purchase also involves prospective buyers being confronted with technical, tax and legal issues that require assistance from a team of specialists in this type of transactions. Firstly, the contractual documentation and the issues raised by the relevant purchase will be different depending on whether the aircraft is bought new directly from the manufacturer or used from a third-party seller. In addition, the contractual documentation will need to take into account whether the buyer needs financing to purchase the aircraft or if it is buying with its own funds. Therefore, the items to be consider will vary depending on the structure of the relevant purchase. This article addresses the main issues to be dealt with in relation to i) the negotiation of a contract for the purchase of a new aircraft; ii) the negotiation of a contract for the purchase of a used aircraft; and iii) the legal issues linked to a possible financing of the purchase price.
PREPARATION
The many aspects of aircraft ownership should be seriously considered before buying.
Buying a New Aircraft When buying a new aircraft, the buyer deals directly with the manufacturer of the aircraft. Each manufacturer has its own standard aircraft sale agreements that they use as a starting point for negotiations.
74 - BART: FEBRUARY - APRIL - 2020
Type Certification The first element that needs to be addressed by a prospective buyer is to verify if the aircraft type that they wish to purchase has already been certified. Indeed, every time a manufacturer produces a new type of aircraft, this has to be certified by competent authorities (EASA or FAA) before it can be placed on the market and sold to clients. If the aircraft has not yet been certified, the manufacturer will have to indicate in the list of aircraft specifications that those specifications are communicated for information purposes only, but that they will need to be updated when the aircraft obtains final certification. When negotiating this type of deals with manufacturers, it is important to introduce an exit clause providing that, if certification has not been obtained by a specific cut-off date, the buyer may terminate the contract and obtain reimbursement of all amounts previously paid to the manufacturer. Ownership and Absence of Liens and Charges As the aircraft is bought new from the manufacturer, it is usually not necessary to carry out searches as to ownership and title. Indeed, the manufacturer is the first owner of the aircraft, which has not yet been sold to any third party. The aircraft sale agreement usually contains representations and warranties as to title and absence of liens or charges on the aircraft.
At the moment of the sale, the manufacturer will issue a bill of sale in favor of the buyer certifying that title to the aircraft has passed to the buyer at the time of delivery. Warranties It is market standard that an aircraft bought from a manufacturer is sold “as-is�. This means that, once the aircraft is inspected and accepted, the buyer will not have any right to claim any damages from the manufacturer for apparent or hidden defects. It is, indeed, market-practice for a manufacturer to add a disclaimer to its contract providing that, except for a warranty of title, the manufacturer does not give any other warranty in relation to the aircraft or its future use. Given this lack of contractual warranties, it is important to verify what type of post-sale warranties or technical support is offered by the manufacturer. Most manufacturers offer postsale support for the repair of defects or the substitution of parts. If the manufacturer of the aircraft is not (as it is often the case) the manufacturer of the engine(s), it is critical to obtain warranties or post-sale technical support also from the engine manufacturer. Buying a Used Aircraft Buying a used aircraft is more complex than buying a new aircraft. Indeed, many items that did not need a specific attention in the framework of the purchase of a new aircraft need to be addressed when buying from a third party.
