Step-by-Step Guide to Buying an Aircraft

Fiona Young-Brown, April 5, 2016

People buy airplanes for various reasons. Emotions and logic can both play a role in making such an important purchasing decision. However, like any major investment, buying a private jet should be well thought out and considered from multiple perspectives. We spoke with several experts in the field about the steps needed to make such a purchase.

For most people, it makes sense to hire a team of experts to assist in the decision-making process. A broker or consultant will guide the process, a lawyer will handle contracts and other legal matters, an accountant will provide tax and financial advice, and a qualified aviation mechanic will conduct technical inspections. These are the key team members.

This article aims to help you understand where to start and highlight the most common mistakes so you can avoid them. Overall, the purchase process can take anywhere from a few weeks to several months, depending on various nuances at each stage outlined below.

ANALYSIS

Before you start exploring the options available on the market (where you might risk falling in love with the available planes), it is crucial to conduct a thorough and honest analysis. According to David Windham, a consultant at Conklin & de Decker, one of the most common mistakes potential buyers make when searching for a plane is failing to take the time to create a list of their own requirements. Your broker will have a range of tools to assess your needs. There are also online tools—such as aircraft valuation programs, and Conklin's website features a CO2 emissions calculator and an aircraft comparison service. The following factors should be considered:

Your Travel Needs

Start by recalling how much you traveled over the past 12 months: how often did you fly, how far, and with how many passengers? Did you fly from major airports or use smaller regional airfields? Were your trips for business? For leisure? Both? Did you carry a lot of luggage? How might these needs change in the near future? Any special requirements for the aircraft's capabilities or features must also be considered.

It’s important not to let one argument outweigh all others. Richard Hodkinson, Vice President of Sales and Aircraft Acquisitions at Clay Lacy Aviation, believes that the most common mistake made by his clients is focusing too heavily on one reason for the purchase while ignoring other needs. For example, you fly to Hawaii for a week with ten family members once a year. For the rest of the year, you usually fly alone or with one other person for a few hundred miles. What type of plane will you buy: a large 12-seat aircraft that is too big for your everyday needs, or a smaller one, and rent something larger for your week-long trip to Hawaii? Hodkinson advises buying a plane that meets your needs 99% of the time, NOT the remaining 1%.

New or Used

New aircraft are more expensive but come with warranties. Additionally, it’s always nice to own something brand new. Used planes can be bought for less, but as they age, they may become significantly more expensive to maintain. Finding parts for aircraft older than 25 years can be challenging. A life-cycle cost analysis will help you compare the overall operational costs over your planned ownership period, as well as compare a new aircraft to a used one.

Budget

Don’t assume that a $4 million aircraft is automatically a better purchase than one priced at $8 million. You must consider a range of additional costs associated with owning an aircraft—at a minimum, operational expenses, annual maintenance, storage, and crew salaries. Windham notes that in this case, fractional owners often have an advantage, as they are typically more aware of the (anticipated) costs associated with ownership. He advises: “An aircraft is an expensive asset; you need to make it work for you.” In addition to expenses, think about potential income. Will you be renting out your aircraft? How will you manage your investment to benefit your budget?

Budget considerations also include whether you plan to make a cash purchase or lease the aircraft, and whether you will seek external financing or rely on your own funds.

Model Comparison

This aspect also falls under the next category, so we will address it there.

RESEARCH

Based on your analysis, you and your team will compile a list of brands and models that meet your requirements and goals. For each model on the list, your advisors should outline capabilities and advantages, strengths and weaknesses, as well as expected costs. Now it’s time to see what the market has to offer.

“It’s crucial to research the aircraft's background before purchasing,” says Hodkinson. Don’t rely solely on the seller's agent's narrative. Their goal is to sell, while yours is to ensure you are buying the right aircraft for you. You must go beyond merely reviewing the advertisement. Start with basic desk research, considering the type of aircraft you are looking for and your budget. Once you have a rough list, you can narrow it down by investigating the aircraft's history. It is vital to obtain a detailed log listing all flights the aircraft has made, maintenance performed, and who and where it was manufactured. Any missing or inaccurate information may lower the aircraft's value, meaning you might face problems later when you decide to sell it.

PURCHASE

With your team, you have conducted research and are now ready to make an offer. The purchasing process can be lengthy and complex. At this stage, quality financial and legal advice will help protect you effectively.

Visiting and Inspecting the Aircraft

Do not trust the advertisement text. You wouldn’t buy a house without an inspection, so don’t do the same with an aircraft that costs several million dollars.

Letter of Intent

This outlines the details of the proposed sale—price, deposit amount, terms of sale, etc. It should also include an expiration date for the proposed deal, giving you the opportunity to reconsider if something goes wrong or if the transaction takes longer than expected.

Deposit

A deposit of 5-10% is typically paid to the broker or escrow agent in advance.

Pre-Purchase Inspection

This can be overseen by your consultant. Tim Barber, Senior Vice President at Cabot Aviation, notes that at this stage of the purchasing process, an experienced consultant can be a key player, as they might notice details that could otherwise go unnoticed. Don’t skip this step or try to cut corners. Most importantly, utilize a licensed aviation mechanic (for the airframe and engines) and, preferably, find someone who specializes in the specific model you are inspecting. The inspector will provide you with a list of deficiencies and discrepancies, if any, and can also indicate the cost to remedy each issue. This list serves as the basis for any negotiations regarding repairs or price reductions.

Purchase Agreement

If you do not already have an aviation lawyer, most brokers will recommend one with experience in such transactions. The agreement will list all terms, including purchase amounts, deposit, conditions for any refunds, timelines for each stage, location for pre-sale inspections, representations, warranties, and much more.

Technical Acceptance

This occurs after the inspection and agreement on any adjustments or price reductions. The buyer conducts technical acceptance, after which the deposit is usually non-refundable.

Closing and Delivery

Closing and delivery are the final stages, but there are still many things to coordinate. Ownership must be transferred, and the aircraft must be registered to the new owner, funds need to be deposited and then transferred to the seller, the new owner must insure the aircraft, and the aircraft must be physically delivered to them.

Congratulations! The documents are signed and sealed. You are now the new owner of the aircraft, but there is still much work ahead. A good consultant will guide you through this process. For example, the location of the aircraft's delivery and how long it will stay there may have tax implications. You will need to find a crew and hangar and decide who will oversee and maintain the aircraft. With a solid team of advisors, everything will go smoothly.