“Buying an airplane can be risky and complicated. It is critical to enter that journey with someone who asks you lots of questions to understand your mission and goals.” – A. Baker, owner of Gulfstream 200, Premier 1, Citation CJ1+, Cheyenne 400 and Piper Meridian
The purchase of an aircraft is both an investment and a major financial commitment. An aircraft broker does far more than coordinate loan documents or assemble a purchase contract. From the beginning, your broker is your advocate and your advisor. They will understand your aircraft needs, taking into account how often you travel, who you travel with and where you go. Along with advising you about the best aircraft for your needs, your broker can help you with the decision to buy factory new or purchase a pre-owned aircraft.
Unlike real estate, where the majority of a purchase investment is made up front, aircraft come with costly inspections and maintenance. Buying a business aircraft can easily come with tens or hundreds of thousands of dollars in annual maintenance and inspection expenses on top of aircraft management fees, hangar rent, pilot salaries, and fuel. Skip required maintenance and your aircraft is not airworthy or legal to fly.
Your broker can help you understand the ways you can keep maintenance and aircraft costs down. Some aircraft come with factory “parts programs” that mitigate the risks associated with the costs of maintaining your aircraft, even providing protection to the hourly rate of mechanics and volatility of parts prices. You may have the option to put your aircraft on a charter certificate to offset your expenses with leaseback revenue. Your broker can help you understand your options after the purchase, and what your decisions will ultimately cost you in the years to come.
Regulatory Differences Between Real Estate Sales, Aircraft Sales and Client Implications
It’s easy to make comparisons between real estate and aviation investments. The real estate and aviation markets are different yet similar. Both are federally regulated, with the difference being that the housing industry is regulated in terms of transactions (meaning brokers are required). In the aviation industry, the federal government only regulates how brokers operate, register and take title to airplanes – not how we sell them. For the client, this is both good and bad news. A major downside to this lack of regulation: Any Joe off the street is able to print business cards and call himself an “aircraft broker” or “aircraft acquisition consultant” that suggests he runs or owns an aircraft sales business.
Some brokers, in attempt to gain buyer clients, will actually use a fake listing to generate calls on an airplane that isn’t even for sale. Although aircraft sales websites have tactics in place to prevent this from happening, if the broker does have a client that allows the listing, it may be impossible to prevent. This is a simple and misleading tactic to gain your business. However common it may be, starting a business relationship based on deception, is at the very least disrespectful of your time. It may be unethical. This is why it’s even more critical for an aircraft buyer to have a known, reputable and trusted representative on his or her team.
In an industry where regulation is lacking, experience is key. As a buyer, you will not be concerned with the licenses your broker has. You should, however, be concerned with their experience. If you weren’t given a direct referral, ask a lot of questions. How many transactions have they completed? Have they only represented buyers, or only represented sellers? How many factory acquisitions have they completed? Can they put you in touch with some of their clients?
The overall impact of the lack of regulation on the sales side of aviation is negative, especially for buyers representing themselves. Sure, you do have the freedom to represent yourself, and broker fees are negotiable. But in practice, these are not positive things. The pitfalls of representing oneself in an aircraft transaction are all too common – and from the outside looking in, they are extremely easy to identify and anticipate.
But in addition to the obvious, as is true with every large asset purchase or decision in life, we humans like to engage a number of different opinions, whether from friends, partners or family. The chances that any one of those opinions aligns with another is extremely slim, which creates the opposite effect than that which is sought: total confusion. Many aircraft transactions have fallen apart at various stages due to someone the buyer knows throwing out a strong opinions like, “You’re crazy to buy that airplane.” This is why a “sounding board” is always a good idea, especially when provided by an expert whose sole job is to help clients with the same or very similar needs as you.
Common Pitfalls Fueled by Uninformed Opinions and Bad Data
There are certain critical steps involved in any aircraft acquisition, and being on the receiving end of bad information, poor intel or uninformed opinions can quickly derail the experience. Here are some of the potential pitfalls clients encounter.
Expert Advice on Finding the RightAircraft – Identifying the Real Mission
The first step in an acquisition – before even looking at a single picture – is to understand what you need from an aircraft (i.e., understand your mission). This mission assessment can be more difficult than it sounds. As buyers, we tend to focus on that one coast-to-coast trip that we may take with the grandkids – not the other 80 percent of flights with only one or two people going a total distance of only 270 nm.
A broker can assist with this analysis, identifying all potential missions and filtering those down to reach your core needs and selecting the most efficient model. For example, it might make sense to purchase the Phenom 300 then charter the G280 twice a year if you need more cabin room. Sure, nine seats are great, but how often will you really fill them? A quick breakdown of the operating costs of a G280 vs. a Phenom 300 may be all the explanation you need.
Choosing the Correct Model
With proper research, a broker can help you with any number of crucial decisions – identifying the most efficient aircraft model types for the core mission; outlining differences in cost, cabin types, operating costs and future mandate compatibility; and comparing that data against market trends, future liquidity index and values. That sounds like a lot, which is a good thing. With all this data in front of you, the decisions regarding aircraft models are much easier to make. Too much information can never hurt.
Focusing and Maximizing Value Proposition
After identifying the most suitable aircraft model, or at least narrowing it down to a few options, the fun part can begin: shopping for airplanes. But buyers can get distracted during this critical stage and lose track of the most important factors on which to base the offer or buying decision. A broker greatly assists with reeling in on what is most important (pedigree, maintenance, history, features), not the vanity aspects that everyone wants (paint and interior aesthetics).
A broker can also substantially expand the range of available aircraft for you to consider. Sometimes the best opportunities are off-market, meaning you would never see them without a broker. Using market summaries, a broker can identify top opportunities – both on and off the market. Additionally, long-standing relationships and tight industry connections allow reputable brokerage firms to identify available aircraft and secure a deal before the aircraft is ever posted online. Some management firms regularly sell aircraft from one client to another without the aircraft ever hitting the market.
And once you find the right airplane and enter into negotiations, it’s always a good idea to take emotions out of a large asset purchase. Brokers can draft and submit offers on your behalf, handling all communications between you and the seller’s team and assuring all your interests are protected and proper terms are being pursued.
Pre-Buy Inspection and Testing
The pre-purchase inspection is usually the most challenging piece of the transaction and a broker can help you in a number of ways:
- Identify the best facility to use;
- Select those who will look out for your interests as the buyer;
- Recommend a qualified engineer for oversight on the inspections;
- Handle negotiations with the seller or seller’s representative;
- Help you understand issues that come up in the inspection such as repairs, corrosion, missing logbook entries, damage history, etc.
Additionally, a broker will offer recommendations on additional inspections to perform based on future upcoming maintenance or known fleet issues for that model aircraft.
Considering Legal and Tax Implications
This is where a broker really earns his or her fee. When the non-functional onboard entertainment system is not deemed “airworthy” by the inspection facility and fixing it comes with a $50,000 or higher price tag; when corrosion in the aircraft belly is repairable yet the future effects on aircraft value are uncertain; or when the seller simply stops performing after you accept the airplane due to cost of airworthy repairs. In many cases, a broker can avoid the legal chase simply be leveraging their relationship with the seller’s representative or by suggesting alternative ideas for a solution that works for both sides.
Sales and income tax mitigation is another area not often at the forefront of buyers’ minds. When buyers represent themselves, once the aircraft is returned to service from pre-buy, decisions are often rushed and these considerations are left out. A broker will ensure all the boxes are checked and proper counsel is sought for all sales and income tax mitigation prior to delivery. Depending on where you live and where you purchase an aircraft, your purchase may have significant tax consequences.
The Best Option is the
Read any personal development book and you’ll find a common theme – a mentor is a must whether you’re buying a house or negotiating your salary. The same is true for your aircraft purchase. Bring experience, knowledge and understanding to a large transaction and you’ll be in a much better position. Buying an airplane may seem easy from the outside, but like everything, it is a process that you want to respect and proceed through with care. Having a reputable advocate at your side that lives and breathes aircraft sales and acquisitions and can watch out for your interests, will eliminate a lot of stress and potentially save you a substantial amount of money and headaches. And without the stress and pressure weighing on you, you get to focus on the fun part – buying and flying your new aircraft.