People buy aircraft for a variety of reasons. Both emotions and logic can come into play in making a big purchase decision like this, but as with any major investment, buying a private plane is something that should be well thought through and considered from several angles. We spoke to a number of experts, in this field to go through the steps involved in the purchase process.
For most people it makes sense to have a team involved in the purchase decision. A broker or advisor to guide the whole process, a lawyer for all the contracts and legal pieces, an accountant for tax and financial advice and a qualified aircraft mechanic for inspections are core members of the team.
This article is designed to give you an idea of where to begin, as well as the common pitfalls to avoid. Overall a typical purchase can take from weeks to months, depending on a variety of factors in each of the steps below.
Before you begin researching actual listings, and risk getting caught up in the glamor of available aircraft, it is vital to do a thorough and honest analysis. According to David Wyndham, a consultant with Conklin and de Decker, one of the most common mistakes potential buyers make when searching for an aircraft is not taking the time to understand their individual set of requirements. Your broker will have a number of different tools to assess your needs; there are also online tools including an aircraft cost evaluator, and Conklin's website has a CO2 emissions calculator, and an aircraft comparison. The factors to be considered include:
- Your travel needs.
As a starting point, look at your travel within the last 12 months: how often have you flown, how far, and with how many passengers? Did you fly in and out of major airports, or were your destinations smaller regional airfields? Were you flying for business? For leisure? A combination of the two? Did you also have a lot of luggage? Now, how will these needs change in the near future? Any special requirements for the aircraft and its abilities or performance. These are all factors that need to be considered.
But it is important not to allow one consideration to outweigh all the others. Richard Hodkinson is the Vice-President of Aircraft Sales and Acquisitions at Clay Lacy Aviation, the most common mistake he sees clients make is to focus too much on one requirement and buying based on that one, while ignoring their other needs. For example, once a year, you fly to Hawaii with ten family members for a week-long vacation. For the remainder of the year, you typically fly alone, perhaps with one extra passenger, for distances of little more than a few hundred miles. Do you buy a large 12-passenger plane that is much too big for your usual needs or do you buy a smaller aircraft and work with an agent to charter something larger for your week in Hawaii? Hodkinson advises: “Buy the airplane you need for 99% of the time, NOT the remaining 1%.”
- Whether to buy new or used.
New planes cost more but come with warranties and have all the emotional appeal of something brand new. Older planes are cheaper to buy, but as they age they can become a lot more expensive to maintain. For aircraft over 25 years old, the replacement parts can also become hard to find. A life-cycle expense analysis can compare the total cost of the aircraft over the period that you plan to operate and keep them, and lets you compare new vs used.
- Your budget.
Don’t be seduced into thinking that the $4 million plane is automatically a better buy than the $8 million option. There are multiple additional expenses to consider with aircraft ownership – operation, annual maintenance, storage and crew to name just a few. Wyndham notes that this is where fractional owners often have an advantage in as much as they are usually more aware of the (planned) expenses that accompany ownership. He advises: “An aircraft is a costly asset; make it work for you.” In addition to your expenses, what about revenue? Will you be chartering your aircraft to others? How can you make your investment work favorably for your budget?
Other budgetary considerations are whether you plan to purchase outright or lease, and whether you will be seeking financing or if the acquisition is to be self-funded.
- Model comparisons.
This consideration also factors into the next category and so we will cover it there.
As a result of all your analysis, you and the team will have come up with a shortlist of makes and models that meet your requirements and missions. For each model on the list your advisors should have provided the features and benefits, strengths and weaknesses and typical costs. Now it’s time to see what is available on the market.
“It is absolutely vital to research the pedigree of an aircraft before you make a purchase,” says Hodkinson. Don’t rely just on what the seller’s agent tells you; they want to make a sale whereas you want to make sure you get the right plane for your needs. Your research should go far beyond the simple listing. Begin with some simple desktop research, bearing in mind the type of aircraft you are looking for and your budget. Once you have drawn up your list, you can begin to narrow it down by digging deeper into the pedigree. It is essential to obtain detailed records that list all trips made in the aircraft, what maintenance has been done, by whom, and where. Any missing or inaccurate information can devalue an aircraft, meaning you could also face problems when you later attempt to sell it.
You’ve done your research, with the assistance of your team, and are now ready to make an offer. The purchase process can be long and complicated. This is where good financial and good legal advice can make sure you are thoroughly protected, every step of the way.
- Visit and review the aircraft.
Don’t just rely on the listings. You wouldn’t buy a house without seeing it for yourself, so don’t do the same with a multi-million dollar aircraft.
- Letter of intent.
This will spell out the details of the intended sale – price, deposit amount, terms of sale, etc. It should also include an expiration date for the proposed deal, giving you the chance to withdraw if things go wrong or take longer than expected.
Typically, a 5-10% deposit is paid up front to either the broker or an escrow agent.
- Pre-purchase Inspection.
Your advisor can oversee this. Tim Barber, SVP at Cabot Aviation notes that this is another point in the buying process when an experienced advisor will make all the difference, since they can pick up on liabilities that would otherwise go unnoticed. Do not skip this step or try to cut corners. Using a licensed (airframe and powerplant) aircraft mechanic is key, and even better if you can find someone who specializes in the specific model that you are looking at. The inspector will provide you a list of deficiencies & discrepancies, if there are any, and may also be able to indicate the cost of rectifying each of these. This list is the basis for any negotiations to fix the deficiencies or reduce the price.
- Purchase Agreement.
If you don’t already have an aviation attorney, most brokers will recommend an attorney who is experienced in such transactions. The agreement will cover all the terms including the purchase amount, the deposit amount, terms of any refunds, the timing for each step, the location for the pre-purchase inspection, representations and warranties, and a lot more.
- Technical Acceptance.
This occurs after the Inspection has occurred and any remediation or price adjustments have been agreed. The buyer executes the Technical Acceptance and the deposit usually becomes non-refundable at this stage.
- Closing and Delivery.
While the closing and delivery are the last steps, there can still be quite a lot to coordinate at this stage. Title has to be transferred and the aircraft registered to the new owner, money has to move into and out of escrow, the plane has to be insured by the new owner, and the aircraft has to be physically handed over.
Congratulations! The paperwork is signed and sealed. You are now the new owner of a plane, but there are still a lot of things to consider. A good advisor will have been discussing and preparing for this along the way. For instance, where the aircraft is delivered and how long it stays there can have tax implications. You’ll need a crew, hangar, and you need to decide who is going to manage and maintain the aircraft. If you have a good team of advisors they will make sure all of these steps go smoothly.
Do you want more information. The SherpaReport Guide to Buying an Aircraft is a detailed 60 page book that walks through all the steps and will really prepare you for an acquisition. The Guide is avaialble as part of a SherpaReport Membership.