Home Law & Order Closing The Deal: Getting Cross-Border Business Aviation Deals

Closing The Deal: Getting Cross-Border Business Aviation Deals

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    • With a limited inventory of quality used business aircraft
      available in the United States, buyers are looking to acquire
      business aircraft from non-U.S. sellers.
    • Such international aircraft transactions create real
      opportunities, but can be more challenging to get across the finish
      line for a number of reasons.
    • In addition, the influx of Russian-owned business aircraft on
      the market highlights the need for enhanced due diligence and
      regulatory compliance.

Differences in law as well as cultural differences can prolong
international aircraft transactions. Assembling a good team of
legal and technical professionals, as well as an aircraft broker
familiar with international transactions, is essential for a
successful transaction. Such a team can help potential buyers
navigate the following key issues.

Technical Issues Can Create Major Costs/Headaches

It is critical to have knowledgeable technical experts
experienced in international transactions to advise on a range of
technical issues, such as:

    • The aircraft may need an Export Certificate of Airworthiness
      and will need to be inspected by a Federal Aviation Administration
      (FAA)-Designated Airworthiness Representative (DAR). DARs can
      differ in expertise and opinion, so it is important that the same
      DAR who does the inspection also is available to issue the
      Certificate of Airworthiness upon registration of the aircraft with
      the FAA.
    • There may be differences in equipment required between the FAA
      and European Union Aviation Safety Agency (EASA)-certificated
    • Changes to aircraft configuration approved by one authority may
      or may not need revalidation.

Be Aware of Legal Differences

Understanding and being flexible, where possible, on key legal
issues can often resolve legal impasses. For example:

    • While used aircraft transactions in the United States are
      typically “as-is, where-is” with broad disclaimers
      regarding the condition of the aircraft, that is not the norm in
      some jurisdictions, where there is an expectation that the seller
      will warranty the condition of the aircraft.
    • In Europe and the United Kingdom, it is common for sellers to
      ask for “tail coverage” insurance covering the seller for
      some period following the sale. While rare in U.S. transactions,
      this coverage is available in the United States.
    • Some jurisdictions require original signature pages, notarized
      or apostilled documentation. This can delay a closing if such
      requirements are not identified early in the transaction.

Timing and Location of Closing and

One common area of dispute is when and where title will pass.
This is complicated for a number of reasons:

    • Non-U.S. sellers may be uncomfortable closing in the United
      States because of a lack of familiarity with U.S. tax laws.
      Similarly, U.S. sellers will have concerns about value-added tax
      (VAT) and other potential taxes when closing abroad. When closing
      in foreign jurisdictions, we often recommend engaging local
      aviation counsel/tax experts to advise our U.S. clients.
    • A seller typically wants payment when it files to deregister
      the aircraft from its jurisdiction, whereas the buyer will not want
      to release funds until the aircraft is registered in its country.
      Given that the deregistration of title process can take several
      days in some cases, this can create an impasse. Careful drafting of
      the “closing room” clause can often satisfy both
      parties’ concerns.

Hammer Out Commercial Terms in the Offer/Letter of Intent

While the LOI in a domestic transaction is often very short, the
number and types of issues that may be potentially contentious in a
cross-border deal are significant and should ideally be ironed out
at the LOI stage. Such issues include the closing location, choice
of law, which party pays for ferry flights and export certificates
of airworthiness, and the scope of the prepurchase inspection.

Be Cognizant of Cultural Differences

Cultural differences also can delay a closing. Such differences
can impact negotiations of the purchase agreement. For instance,
although U.S. practice is to follow the terms of a non-binding LOI,
in some cultures, aggressive bargaining may continue on material
terms – even during the delivery phase.

Being flexible and compromising on certain terms, without losing
the overall value of the transaction, is important in order to not
delay closing. In addition, prior to engaging in negotiations, it
may be prudent to inform the U.S. party that such aggressive
negotiations may occur.

Complying with Import/Export Requirements

Separate from the aviation regulatory requirements associated
with international transactions (e.g., registration,
deregistration, export certificates of airworthiness, etc.),
aircraft being sold cross-border are treated as
“merchandise” and subject to different export, import and
tax considerations than when carrying passengers in the normal
course of business.

    • Aircraft entering the United States for the purpose of sale
      must generally be “permanently imported” for customs
      purposes at the time of entry, even if they are coming into the
      United States for a prepurchase inspection where the purchaser can
      and may reject the aircraft. This should be clearly documented in
      the purchase agreement and discussed with the broker/seller to
      ensure that the import process is followed.
    • When exporting from the United States, all parties need to
      ensure that the export is in compliance with U.S. export control
      and export clearance laws, including making an Electronic Export
      Information (EEI) filing when required in connection with the
      export of aircraft. (See Holland & Knight’s previous client
      alert, “Avoiding Pitfalls When Exporting Aircraft from the
      United States,” for helpful tips and guidance.)
    • When purchasing an aircraft from a foreign seller and the
      aircraft was originally exported from the United States, it is
      important to make sure that the aircraft was exported properly. In
      some circumstances, when the aircraft was not properly exported, a
      corrective EEI filing may have to be made prior to importing the

Conduct Enhanced Know Your Customer (KYC) Due Diligence

With international aircraft transactions, increased compliance
risks warrant enhanced due diligence:

    • A number of business aircraft owned or formerly owned by
      Russian nationals are on the market. While it is possible to do
      such deals, where the Russian national is not sanctioned, these
      deals are complex and require substantial diligence, and in some
      cases authorization from the U.S. government may be required. (See
      Holland & Knight’s previous alert, “Navigating Russian Sanctions in Corporate Jet
    • The U.S. government believes that drug cartels are routinely
      buying older business aircraft to use for drug smuggling or other
      criminal activity. Hence, when selling older aircraft to South
      American and Central American buyers, additional diligence is

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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