Planning for a New Aircraft Delivery
Part 2 of 4: Closing Preparations
By Peter Zeeb | VanAllen
In Part 1 of our New Aircraft Delivery series, we highlighted the technical elements for a successful new aircraft delivery. At the end of the technical phase, you have a mechanically sound aircraft which complies with the purchase agreement and you are ready to proceed to closing.
Similar to the technical phase, the closing phase of delivery includes critical steps that need to be taken to ensure a smooth process.
One month before delivery:
Transaction Team – The complexity of an aircraft delivery requires numerous team members who will look at the transaction from different perspectives. Create your all-star team for a successful delivery by having each of the following areas represented: legal (internal and aviation-specific), accounting, finance, flight operations, risk management, tax, and procurement.
Tax Planning – Have your legal and accounting team review your ownership structure to confirm your tax planning strategy.
Financing – Confirm your financing requirements and solicit proposals.
Registration Number – If you have not already, confirm your registration number requirements and file the associated paperwork with the FAA.
Insurance – Contact your broker and advise them of your
transaction. Get quotes for the coverage you desire and keep them in the loop as the transaction progresses.
One week before delivery:
As the technical acceptance process moves ahead, you will begin to define a delivery date. As mentioned before, the week will be a flurry of activity, conference calls, and navigating issues as they arise. The earlier you can navigate some of these questions and issues, the smoother the closing will go.
Closing Documents – Review all closing documents for completeness and accuracy. Typos happen and can create headaches down the road. Ensure you have all the documents you need regarding your transaction and how it may have evolved since the purchase agreement was signed. For example, have you determined for tax reasons that a different entity will take title of the aircraft versus the one on the purchase agreement?
Closing Location – For tax purposes, both the seller and buyer will want to select a closing location that is mutually acceptable. Can you remain in the same state as you did your acceptance? If not, you will need to consider an airport in a mutually agreeable state. Is there a service center or MRO on the field? Are there easy commercial airline options nearby for the participants arriving by those means? If you are staying overnight, are there convenient and quality hotels? You will also need to confirm the seller/OEM will have crew to relocate the aircraft.
Flow of Funds – Determine the flow of funds and the various parties who will be paid directly and through escrow. A final settlement statement or invoice should be created by the seller/OEM. If a lender is involved, coordinate with their team to ensure their documents have been reviewed thoroughly.
Powers of Attorney – Confirm who will be present at delivery and who will be executing which documents at delivery. If a limited power of attorney is required, get one in place.
On the day of the delivery, you will have a mechanically sound aircraft with all parties ready to close the deal. The number of variables and iterations of a delivery are endless. Examples include importation from another country, involvement of a management company, multiple buyers, non-US citizenship, etc. From a high-level, the following will occur at the day of delivery.
Aircraft Relocation – Unless you have completed your inspection in a tax-friendly state, the aircraft will fly to the closing location using the seller’s crew. If the purchase agreement allows, having representation on board this flight serves as another set of eyes to confirm the aircraft is operating as expected. Upon arrival, a visual inspection of the exterior is a good practice to confirm nothing happened in-flight.
Insurance – Contact your insurance broker and bind your coverage.
Closing Call – If you are closing through an escrow company, they will commonly coordinate a closing call. The escrow agent will confirm all parties are ready to close, read through the list of documents to be filed with the FAA, and confirm funds are in place. For documents to be executed at the closing location, the parties will confirm execution and associated blanks are completed. The escrow agent will then file and date the documents with the FAA to consummate the transaction.
Creating a plan and sticking to it can help to ensure a smooth delivery process; the more you can customize the process to your specific make and model, the better. Stay tuned for part 3 of 4 of the Aircraft Delivery Series: Operational Preparations.
Contact VanAllen to learn more.