Closing The Deal: Getting Cross-Border Business Aviation Deals

• • 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
    aircraft.

• • 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
Deregistration/Registration

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
(LOI)

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
    aircraft.

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
    Transactions.”)

• • 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
    required.

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.