Buying Your Own Set of Wings: What to Consider with Aviation Transactions
Elisabeth D. Kozlow, Attorney and Shareholder at Siegfried Rivera Law Firm speaks about aviation transactions and how selling and purchasing aircrafts differ from more typical items of property and the importance a strong contract plays during the process.
Can you break down how selling or purchasing airplanes differs to more common items of property, such as real estate?
Aircraft in the US and other countries are titled on a national registry as opposed to a local registry with title to real estate. Unlike real estate, security interests in aircraft are recorded both on a national registry and on an international registry. The international registry was primarily designed to protect lenders’ interests because aircraft are moveable. If the security interests were only recorded on a national registry, an aircraft could be sold in another country without a buyer knowing of the lien. An astute buyer must search both the national and international registries to ensure it obtains clear title to the aircraft. In addition, the terminology in an aircraft purchase agreement is different from a real estate contract.
Issues arise if a buyer is not experienced in aviation matters and fails to employ experienced representatives to assist them with the purchase.
Can you briefly share the regulatory requirements clients must meet in order to successfully sell or purchase their airplane?
Although every country has different regulations, they all have regulations with which must be complied. For example, the US has citizenship requirements for registering an aircraft on the US registry. Failing to meet the citizenship requirements can cause deregistration of an aircraft and can greatly impact a sale or purchase. Many other countries have citizenship requirements. In addition, the registration and deregistration regulatory requirements must be met. If an aircraft is bought by a US buyer but is registered on a foreign registry, importation regulations must be followed. Conversely, if a US registered aircraft is sold to a buyer who wants to register the aircraft in another country, deregistration and export regulations, such as obtaining an export certificate of airworthiness from an FAA certified representative, must be followed.
The contract is extremely important.
When do issues arise? What are, in your experience, common reasons to why transactions go wrong?
Issues arise if a buyer is not experienced in aviation matters and fails to employ experienced representatives to assist them with the purchase. If a buyer wants an aircraft that it can charter under FAA Part 135, the aircraft will need to meet certain technical requirements. If the aircraft only meets personal use requirements under FAA Part 91, that buyer may not be able to charter the aircraft and may no longer be able to afford the aircraft it purchased. If the aircraft is being purchased for charter, the buyer needs to specify in the contract that the seller represents that the aircraft meets all requirements of FAA Part 135.
One of the issues that may be overlooked by a buyer is the tax considerations.
How important is the contract during aviation transactions? What things must be addressed in such contracts?
The contract is extremely important. Technical issues, such as the condition of the aircraft, its equipment and its logbooks, specifications of the aircraft, where the aircraft is going to be registered, whether it needs to be deregistered, damage history, inspection rights and conditions to close, must all be set forth in the Aircraft Purchase Agreement. The contract must be clear and unambiguous in its terms and should specify which items that the seller will be responsible for, and the items for which the buyer will be responsible. Time deadlines such as the buyer’s time to inspect the aircraft, time to deliver documents to escrow, and closing time to fund and close on the aircraft must be included in the contract. One of the issues that may be overlooked by a buyer is the tax considerations. In the US, certain states do not impose sales tax on the aircraft purchase. The buyer may seek to close in a tax friendly state.
Outside of the US, some countries impose high luxury or import taxes. In such cases, the buyer should consider registering the aircraft in a more tax advantageous jurisdiction than their home country. The US has trust structures that can be used by a non-US citizen to register the aircraft under the US Registry. All the above considerations should be evaluated before the buyer executes an aircraft purchase agreement.
Elisabeth D. Kozlow
Elisabeth D. Kozlow practices in the areas of Aviation Law, Shopping Center and Leasing Law, Construction Law and Corporate Law and performs general Commercial Transactions. She also provides corporate consultation to many of the firm’s construction clients. At Siegfried, Rivera, Hyman, Lerner, De La Torre, Mars & Sobel, P.A., we have pioneered a uniquely personalized way to practice law. Their legal team and support staff have extensive experience in all aspects of construction law, condominium association matters, homeowners and community association law, real estate, and corporate law.