Buying an aircraft is an exhilarating experience, but it’s important not to rush through the process. Many buyers make common mistakes that can be easily avoided with proper due diligence. Here are four key mistakes to steer clear of when purchasing an aircraft:
1. DON’T IGNORE BIG BROTHER – HE IS WATCHING
We won’t get into politics, but let’s just say, general aviation is in tax collectors’ crosshairs. It is imperative to implement a tax plan before you go under contract. Even if you buy the aircraft in a state with no sales tax, you may still be subject to a “use tax” when bringing it into your home state. Tax planning should go beyond just considering the date and location of closing.
2. DON’T LET THE FOX GUARD THE HENHOUSE – HAVE SOMEONE INDEPENDENT PERFORM THE INSPECTION
Many aircraft purchasers are so excited to start flying their new dream machine that they will often fly right past a diligent inspection process. The first key is to bring the aircraft to an independent inspection facility. Have a fresh set of eyes inspect the aircraft. The purchase agreement should clearly specify the standards for repairs and maintenance, including the functionality of systems and adherence to inspection schedules. Addressing these details in advance through a properly worded air-craft purchase agreement can prevent disputes during the inspection process.
3. DON’T ACCIDENTALLY START AN AIRLINE – FOLLOW FAA RULES ABOUT YOUR LLC AND OWNERSHIP STRUCTURE
When structuring the ownership of your aircraft, it’s crucial to follow FAA rules and regulations. Registering the aircraft under a Limited Liability Company (LLC) without an operational agreement in place can inadvertently lead to running an illegal com-mercial flight operation. This can result in FAA fines, license actions, and potential insurance coverage denial. Ensure compliance with FAA regulations and consult professionals familiar with aviation law to avoid legal and insurance issues.
4. DON’T BE A HERO – DON’T DO IT ALONE
While you may be knowledgeable about flying, acquiring an aircraft involves complex transactions that benefit from a team of experts. Hiring professionals with expertise in different areas can provide financial protection, peace of mind, and save you time. Consider the following experts:
Aircraft Broker/Dealer: An experienced professional broker/dealer can advise on air-craft values in a specific market segment, provide accurate pricing data (historical as well), and connect you with potential sellers before they list their aircraft publicly. Highly specialized firms excel in this arena, and with tight markets/high demand, private sale opportunities are extremely valuable.
Aviation CPA: Collaborating with an aviation-focused certified public accountant can help optimize tax benefits, ensure compliance with reporting requirements, and streamline accounting processes.
Aviation Attorney: Engaging an aviation attorney who understands Federal Aviation Regulations (FARs) can help negotiate contracts, establish FAA-compliant operating structures, oversee closing procedures, and review legal agreements related to the hangars, management, charters, or pilot arrangements. Also, understanding the landmines of an aircraft purchase agreement can mean the difference between a smooth transaction and a post-closing lawsuit! A good aviation attorney is invaluable.
All of these “DON’Ts” are easily avoided with a just a little bit of due diligence. Use your broker/dealer as a resource to help you find the perfect team, put together the perfect transaction, and start flying your perfect plane.