In Part 1 of this series on airplane acquisition, we discussed the most efficient way to approach buying an aircraft by using three checklists—Pre-purchase, Purchase and Aircraft Delivery. We also detailed the Pre-purchase Checklist.
You're now staring at your ideal airplane on your screen. Time to run the Purchase Checklist:
Escrow, Letter of Intent and Purchase Agreement. Escrow appears in all three checklists. Before it was a reminder to get your down payment together. Now it triggers you to move money into an escrow account that you set up through your escrow agent. If you're unfamiliar, AOPA has a strategic partnership with Aerospace Reports and as a member you’ll get discounted pricing and we can help get things set up. Likewise, if you’re working with another escrow company AOPA Finance can help coordinate that too. Plan on a deposit of 5%-10% of the aircraft's asking price.
The letter of intent puts a clock on the deal, enables you to withdraw from it without penalty under certain conditions you and the seller negotiate, and establishes the parameters for the final price.
This is also time to have your aviation attorney to draw up a detailed purchase agreement. If you don't have one, AOPA has a sample purchase agreement you can view here. You may want to consider signing up for Pilot Protection Services which includes consultation with an attorney regarding your purchase of an aircraft specific to your state and the legal requirements there. What it covers includes, but is not limited to, purchase amount, refund terms, deadlines for the process, representations and warranties, even the location of aircraft delivery.
Notify Lender. The sooner you notify the lender, the sooner the lender can convert the pre-approval into an approval. Your lender will conduct background checks, damage history queries, etc. If the aircraft is missing logbooks, that may affect the stipulations of the pre-approval with the lender. Each has a set of tolerances for missing logbooks. Ask before you commit to a particular lender. AOPA Finance may be able to help.
Pre-purchase Inspection. Even before you go to the airplane, have the logbooks sent to you. Nowadays, most sellers have their airframe and engine logbooks scanned into PDF format for ease of emailing. Get your mechanic started perusing those logs. You and your lender will want to know whether the logbooks are complete as soon as possible. An incomplete set can frequently impact the final price, and it may also affect the plane's insurability.
In most instances, it's best that a mechanic other than the regular mechanic for that airplane perform the pre-purchase inspection. That may mean flying your assigned A&P to the airplane's location, with a hotel stay.
International Registry. If your plane is subject to the Cape Town Treaty (see here for more info), you should begin the International Registry process simultaneously with contacting your escrow agent. It's complex and time-consuming and may affect the timing of your closing date. Subject to some exceptions, an aircraft must be registered with an appropriate aviation authority before it can be legally operated in any country. Suffice it to say, better to have your team of experts handle this checklist item.
Insurance. As far as your lender is concerned, typically, they’ll require you to maintain full ground and flight insurance, as well as "Breach of Warranty Coverage" for the amount of the loan with a carrier acceptable to the lender.
The lender must be named as "loss payee" and be protected by a "lien holder's endorsement." Once you have been placed with the appropriate lender, we will send you the specific insurance requirements for that lender.
Title Search and Background Checks. Usually, this will be a straightforward process. If a plane has been in an incident, involved in an estate dispute or part of a bankruptcy, though, then things could get complicated. Your prospective insurer, your lender and your escrow agent may all play a part in these searches and checks. We've heard too many stories of airplane deals falling through at the last minute because of lack of due diligence by the buyer, so be thorough.
All that complete, what's left is to take delivery. There's one last checklist to run—the Aircraft Delivery Checklist:
Punch List. Here's where the due diligence of your title, escrow or insurance representatives pays off. They'll work with you to clear up any liens or estate claims. Similarly, the list of deficiencies and discrepancies your mechanic delivered will have been either rectified or negotiated into a lower price.
Technical Acceptance. Once the Punch List is complete, the buyer then executes and delivers a Technical Acceptance Certificate to the seller. This says the buyer accepts the condition of the aircraft, subject to "no material damage and/or total loss affecting the aircraft upon or prior to arrival of the aircraft at the delivery location." The deposit usually becomes non-refundable at this stage.
Escrow. The remaining purchase price is deposited into the escrow account, and the seller is paid.
Closing and Delivery. The title is transferred and the aircraft is registered to the new owner, once the new owner insures it. Finally, the aircraft is turned over or delivered to you. Congratulations.
Considering aircraft ownership? AOPA Aviation Finance will make your purchase experience as smooth as possible. For information about aircraft financing, please visit the website (www.aopafinance.com) or call 1-800-62-PLANE (75263).