November 19, 2019
An aircraft purchase agreement (APA) helps ensure the orderly transfer of title to an aircraft. With the growing popularity of personal, luxury, and business jets, the APA assumes increasing importance. In this article, we’ll explain the structure and contents of an aircraft purchase agreement.
In addition, we’ll point you to a sample aircraft purchase agreement and aircraft purchase agreement in PDF format. Next, we’ll discuss how Assets America ® can help you with financing aircraft. Finally, we’ll conclude by answering a few frequently asked questions about APAs.
Assets America ® can arrange financing for the purchase, lease, and sale-leaseback of aircraft starting at $10 million and above. We can also help in the actual brokerage of the sale as well; we can help find, locate and negotiate the transaction from beginning to end. Please call us today at 206-622-3000, or simply fill out the form below and expect a very prompt response.
An APA is a document that specifies the purchase and sale of an aircraft. Both parties, the buyer and seller must mutually execute the document. Typically, the buyer offers the seller an LOI (letter of interest). The seller then signs the LOI once all terms are mutually agreed upon. Subsequent to the execution of the LOI, the parties progress to the more formal, detailed and much lengthier document, the aircraft purchase agreement.
After the execution of the APA, the buyer pays the purchase price, or consideration, to the seller, who then transfers title to the buyer. Businesses and private individuals use APAs to purchase new and used aircraft. Typically, lawyers on both sides will structure and review the APA. An orderly process helps smooth the overall transaction.
The process starts when a buyer decides to purchase an aircraft. Typically, businesses purchasing expensive corporate jets (aka business jets) or helicopters will assemble a small aircraft acquisition team, which may include:
The team’s job is to identify and prevent any problems before they can manifest.
Frequently, the in-house counsel acts as the team leader. The attorney oversees all aspects of the acquisition process and approves the deal documents, including the APA. As shown below, the aircraft industry uses standard APAs, but counsel can revise these as needed. Typically, aircraft purchase transactions close quickly, putting time pressure on the acquisition team.
The team identifies possible issues and appoints members to address them:
Some teams may generate a Request for Quote (RFQ) that contains all the deal requirements and constraints. The team provides copies of the RFQ to manufacturers, sellers, selling brokers, and other interested parties. The RFQ specifies the desired aircraft features and characteristics. The process continues with several steps that may include:
If the buyer disseminates one or more RFQs, it will evaluate the quote sheets returned by potential sellers. Accordingly, the buyer may eliminate or qualify sellers.
The broker, technical advisor, and/or other experts will inspect candidate aircraft. Quite often, sellers offer used aircraft as-is, so buyers must undertake extremely thorough inspections. The inspection should reveal any repairs that the seller will repair and/or finance. The seller may prefer to limit repairs, such as ones that affect air-worthiness as opposed to other items.
The buyer must perform due diligence on the aircraft’s title. It will check airframes and engines from sources such as the FAA Registry and the International Aircraft Registry. Buyers should also research the aircraft’s records including that of any tax liens, judgment liens, or rap sheets. The buyer should most assuredly purchase title insurance.
The buyer and seller should negotiate the terms of the purchase. This includes price, date, place of delivery, required repairs, and any other important provisions. The result can be one of several documents, including a Letter of Intent (LOI), Term Sheet, Offer to Purchase, etc.
Frequently, LOIs are non-binding. They should, however, contain all the important aspects of the purchase. Doing so will make it easier to finalize the more formal aircraft purchase agreement. It will also save you the time it takes to create the APA if the seller is not serious about the sale.
After both parties execute the LOI, it’s time to draft the APA. Manufacturers provide their own standard APAs. However, when the seller is not a manufacturer, the buyer or seller may draft the APA. In most cases, the buyer should perform this task to ensure they include sufficient protections.
Experts agree that aircraft brokers and non-expert lawyers should not write an APA, as the resulting document may require a full rewrite wasting time and money. Lawyers should have aviation law expertise if they participate in this process. The APA may add language about rights to a jury trial, tax indemnities, and escrow fees.
APAs can vary in the number of provisions they contain. At a minimum, an APA should address:
All heck can break loose without a proper purchase and sale agreement, especially once a dispute arises. Without the agreement, the parties may disagree on who pays for what, and what the buyer will receive from the seller.
Newspapers have reported that Russian oligarchs who purchased aircraft were hiding their purchases. They did so by using straw owners on the U.S. Registry. This practice raises questions of taxation and national security.
While legally it is not mandated to have an attorney, it is absolutely advisable to use one! Trying to close such a complex transaction without an attorney would be risky, unless the seller is a trusted friend or relative, and even then, you should always use an attorney. Many things can go wrong with an aircraft purchase-sale that you can avoid with a proper APA.
An LOI is a letter of intent. You use it to specify the overall outline parameters of a deal. Later on, you use the LOI as the starting point for drafting the aircraft purchase agreement.