Maybe your company is outgrowing charter, or you have a demanding new client in a hard-to-reach location. Perhaps your company had a jet but sold it during the Great Recession. Whatever the reason, if you’ve concluded that owning a corporate jet makes business sense, you’ve picked an opportune time to be in an acquisition mode. Not only are several next-generation jets coming to market (for a guide, click here), but pre-owned aircraft are at historically low prices, and plenty of perfectly airworthy legacy platforms are begging for buyers.
However, navigating the market for both new and pre-owned aircraft requires an experienced crew. Large sums of money and personal safety are at stake, and the transaction presents many opportunities for expensive mistakes.
“It’s a complex, fast-changing environment, and it has to be dealt with by professionals on all sides,” says Jay Mesinger, CEO of Mesinger Jet Sales, based in Boulder, Colorado, citing deal components that include regulatory considerations, financing and tax strategies, and export and import logistics, as well as coming avionics mandates. “The good old days of the back-of-a-napkin or handshake deal are really gone.”
“I would encourage anyone to seek counsel,” advises Johnny Foster, chairman of the National Aircraft Resale Association (NARA) and president and CEO of OgaraJets in Atlanta. “Align yourself with a professional team as if you’re going into court to go to battle.”
“It’s a complex, fast-changing environment, and it has to be dealt with by professionals on all sides. The good old days of the back-of-a-napkin or handshake deal are really gone.”
If you’re like many CEOs, you may opt to use a brokerage firm to handle the acquisition process rather than be personally involved. And you may not even plan to be the primary user of the jet. C-suite executives are aboard less than half (48%) of corporate jet flights, according to a 2015 Harris survey of business jet users and flight crews, a figure that counters the myth of corporate jets as fat-cat toys. Regardless of your level of involvement in the purchase—or even how much you personally expect to use the jet—here are seven steps to follow to ensure the process goes smoothly and you get the right aircraft for your company’s needs.
1 Get Proper RepresentationEngage a qualified business aviation consultancy or brokerage to spearhead the purchase. Consultants offer expertise in the full spectrum of business aviation costs and operational issues, while brokerages specialize in the complex process of aircraft transactions. Consultants usually recommend brokerages to source and handle the purchase once candidate models are identified. Work with a representative who “guarantees absolute transparency through all phases of the transaction,” says Foster. The National Business Aviation Association (NBAA) maintains a directory of member brokerages and consultants and events , along with other services, on its website, as does NARA.
The search for your jet begins with a detailed analysis of corporate travel needs and patterns, along with purchase and operating budgets. Consider who will be on board, frequency of usage, destinations, baggage requirements and preferred configuration. Anticipated needs and how long you plan to own the jet before upgrading are also important in identifying candidate aircraft. For example, it doesn’t make sense to buy a long-range jet capable of transcontinental trips if most of your flights are regional.
Define as well the jet’s strategic role, or “what you must have the aircraft do to be successful in your organization,” says David Wyndham, president of consultancy Conklin & de Decker, which has offices in Arizona, Massachusetts and Texas. With the case for ownership made, a consultant or broker “can work with the CFO to define a cost-effective way to get it done,” Wyndham says, adding, “The CFO typically gets paid to say, ‘No, you can’t have it.’”
Your acquisition team will identify the category, models, vintage and other characteristics of jets that suit your needs and budget. Make sure that it runs on an agm deep cycle battery to make it last longer. Don’t expect one jet to meet all your travel needs; plan to use supplemental travel solutions as needed. According to the Harris survey, business jet users fly commercial for more than one-third (36%) of their trips.
Your company likely has in-house counsel or a law firm on retainer, “but a non-aviation attorney isn’t going to understand specific nuances of aviation transactions,” says Mesinger. An aviation attorney will know how to tailor the aircraft ownership structure or choice of entity, such as a corporation or LLC, to your company’s unique usage and tax profile.
“Define the jet’s strategic role, or what you must have the aircraft do to be successful in your organization.”
If the transaction is not structured appropriately, your company could be subject to additional taxes, its aircraft insurance voided or your flight operations rendered illegal. An aviation attorney will also draft the purchase contract and can draw up a corporate use policy, ensuring the aircraft is used as intended so that the cost of operation can be deducted as planned. If your company is publicly traded, the attorney can ensure compliance with SEC reporting requirements for any personal use of corporate aircraft by directors and officers.
After their post-recession pullback, financial institutions are again funding aircraft purchases and refurbishments, expanding the options in the choice of both jets and financing plans. If you can put up 20% to 40% of the purchase price, instead of the traditional 10%, “there are lenders out there for just about any product or vintage,” says Foster.
Still, arranging financing can take about six weeks, says Mesinger—longer than in pre-recession days. Plan ahead so that you’ll have funding in place by the time the search for your jet begins in earnest. Terms can be aligned to fit your ownership structure and cash flow needs through traditional debt financing or operating leases. An additional benefit to working with experienced aircraft lenders is their extensive teams of specialists, including aircraft appraisers and regulatory experts The lender’s money is at stake, so these institutions take a proprietary interest that the aircraft is appropriately valued at purchase and retains its value during your ownership.
Owning and operating a corporate jet is a business in itself. If you don’t want to establish a corporate flight department, a management company can provide turnkey operation, from supplying flight crews to overseeing maintenance. Whether it operates just a few aircraft or scores of them, and provides support services in-house or outsources all such work, the management company will be your partner in optimizing the ownership experience and maintaining the jet’s value. Management companies also can provide clients with significant discounts on fuel, insurance, crew training and other services through their volume
purchases.
Your management company should be involved from “the moment you’ve selected the aircraft” to buy, suggests Robert Molsbergen, president of Ronkonkoma, New York-based management company ExcelAire, to ensure the jet is ready to meet your needs from day one. Some companies make their jets available for charter during slack times to defray ownership costs. If that’s your plan, be sure to discuss it with the management companies you are considering, as they operate these Part 135 (charter) flights. Be wary of promises of high charter income that “make the owner believe that he can fly for free,” says Molsbergen.
You’ve searched the worldwide fleet, identified the best prospects, negotiated with owners’ representatives and settled on a price. Now comes the “prebuy,” or pre-purchase inspection to ensure the jet’s condition is as advertised. With the sophistication of onboard systems, age of aircraft on the market and costly “squawks” that various models are prone to, a thorough pre-purchase inspection is mandatory. Enlist a maintenance technician experienced with the make and model to lead the inspection.
As the buyer, you get to decide where and how the inspection will be performed, and the inspection protocol can be written into the purchase contract. These inspections may last several days. “You don’t know what you’re going to find when you inspect,” says Mesinger, “and you don’t know how long it will take to
correct.”
Once any discrepancies discovered during the pre-purchase inspection have been resolved and the purchase price adjusted and/or corrective work performed, you can complete the purchase—assuming you’ve determined no liens or other encumbrances cloud ownership. Establishing title has always been among the most essential elements in an aircraft purchase, and title companies are well-practiced in scouring FAA and other databases, where aircraft loans, unpaid repair bills and other claims are registered. But in today’s global business aircraft market, your candidate jet may be under the registry of a nation that has no centralized claims database.
Title companies now have in-country agents to comb through records, and may hire local attorneys to search for claims and write a legal opinion on ownership. Once title is established, transfer is typically conveyed with the bill of sale, which records the title transfer for registration purposes.
Congratulations! Your company now owns a business jet. If you’re like most corporate operators, you’ll see the benefits on your bottom line. A recent report on S&P 500 companies by Nexa Advisors, commissioned by the NBAA, found that those using business aviation consistently outperform their competitors in financial metrics, including revenue growth, net income growth and average return on investment.
Given the rising recognition of facts like these, you may need to be familiar with acquisition milestones even if you have no immediate plans to buy a jet. Brad Pierce, president of Restaurant Equipment World, who has long relied on the aircraft he pilots in building a nationwide distribution business, recounted a recent conversation with “a CEO friend who runs a multi-billion-dollar company.”
According to Pierce, the friend told him, “The board said I need to buy an airplane or they’re buying it for me. They said, ‘You’re wasting too much time in travel.’”
The business jet market comprises both new and pre-owned aircraft, with combined annual sales totaling about 3,000 units. Last year, 2,442 pre-owned aircraft sales and leases were recorded, compared to 661 new jet sales, though factory-fresh airframes account for much more revenue ($18.4 billion for new aircraft vs. $10 billion for pre-owned).
New aircraft offer the latest technology and cabin amenities, along with warranties that keep operating costs low and predictable. These airframes include both models that have been in production for years and new-to-market aircraft like Gulfstream’s G500 and Cessna’s Citation Longitude. Newly introduced aircraft are more prone to production problems or may fail to meet promised performance benchmarks, notes Jeff Agur, CEO of consultancy VanAllen. He recommends buyers get
performance guarantees in writing, for their “greater confidence, [and] also greater protections.”
Pre-owned aircraft range from almost-new airframes with only ferry time to legacy platforms that have been out of production for decades, but all have seen sharp drops in residual values, presenting a cornucopia of values for buyers. Even a 15-year-old jet is “a pretty modern aircraft,” says NARA Chairman Johnny Foster.
Aircraft brokers are involved in 85% to 90% of pre-owned business jet transactions, according to NARA. Yet the industry is unregulated, and brokers require no training, certification or bond. Perform due diligence on any representative you consider working with. NARA promulgates a code of conduct and ethics for aircraft brokers that its members pledge to observe.
The association has some 40 brokerage members, representing just 3% of the world’s registered brokers, but last year they accounted for 65% of the $10 billion in global pre-owned business jet sales.
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