By Samuel R. Thorne, October 10, 2023
Aviation Audit
The Landscape of Global Aircraft Transactions
In recent years, the business aviation industry has witnessed a remarkable shift in the geographical dynamics of aircraft deliveries. More new aircraft are now being delivered outside the United States than within its borders. This evolving trend highlights the expanding international markets and the benefits realized through private air travel. However, it also introduces significant complexities to aircraft sales transactions, necessitating a thorough understanding of the associated regulations and practices.
According to data from JETNET, a reputable market research firm in the business aviation sector, over 41% of new aircraft deliveries were made outside the U.S. in 2007, with this figure soaring to nearly 68% in 2010. This paradigm shift indicates that a substantial portion of the global business aircraft fleet is now being transacted internationally, presenting both opportunities and challenges for buyers and sellers alike.
Scot C. Burgess, principal of an esteemed aviation legal group and a seasoned member of the National Aircraft Resale Association (NARA), has observed notable changes in market behaviors over the past several years. “In the past, U.S. buyers were hesitant to repurchase aircraft that were registered outside the country. However, this mindset has evolved significantly,” he explains.
As global acceptance of aircraft registered under non-Federal Aviation Administration (FAA) jurisdictions increases, we find a variety of registries, such as those of the Cayman Islands, Bermuda, and the European Aviation Safety Agency (EASA), gaining traction. Historically, an aircraft’s FAA registration was seen as a marker of quality, but that is no longer the prevailing sentiment.
Understanding Cross-Border Transactions
Burgess notes that his firm coordinates about twenty aircraft transactions annually, with cross-border dealings often eclipsing domestic sales. “The upper end of the midsize market and the large-cabin, long-range market is nearly entirely cross-border right now,” he says, emphasizing the growing significance of international transactions.
The implications for those looking to buy or sell business aircraft are profound. Given the likelihood of cross-border transactions, understanding the diverse regulatory landscapes becomes essential. Every nation has its unique tax laws, civil aviation regulations, and customs protocols. Consequently, a process that may seem straightforward can become quite intricate.
Strategic Planning: A Necessity
As Burgess points out, “Cross-border transactions are not necessarily trickier,” though they require meticulous planning. He advocates for a structured approach, similar to what one would employ in any domestic deal.
Brad Haris, Founder and CEO of Dallas Jet International and a long-time NARA member, echoes this sentiment about the importance of planning. “Two major processes are essential when selling an aircraft to a foreign buyer: first, you must export the aircraft from its country of registration, which requires an Export Certificate of Airworthiness. Next, you’ll need an Import Certificate of Airworthiness, conforming to the new country’s regulations,” he explains.
Proper planning also extends to conducting a thorough pre-purchase evaluation, determining the aircraft’s home base, negotiating the delivery location, and navigating the financial and legal implications associated with sales, usage, and other taxes. Furthermore, considerations must be made regarding moving the aircraft through customs and addressing potential currency fluctuations and cultural differences in transaction practices.
Navigating Airworthiness Challenges
Understanding airworthiness is imperative in cross-border aircraft transactions. Typically, the seller bears the responsibility for the Export Certificate of Airworthiness, while the buyer is accountable for the Import Certificate and its associated costs.
Haris notes that about 15-25% of his business revolves around aircraft import and export. His firm has worked with a diverse range of countries including Argentina, England, the United Arab Emirates, and many others.
When dealing with European countries, the relatively standardized regulations of the European Union facilitate smoother transactions, especially considering existing bilateral agreements with the FAA. However, he identifies the U.S. import process as the most complex if the aircraft has been registered overseas, requiring a thorough inspection by a Designated Aviation Representative (DAR) upon arrival.
“For U.S. compliance, we conduct a comprehensive inspection akin to an annual-type inspection,” Haris elaborates. Following this, a Certificate of Airworthiness is issued, and the application for registration with the FAA is filed. However, challenges can arise, such as when imported equipment installations are not recognized by U.S. authorities, which necessitated the removal of a Terrain Awareness Warning System during a previous transaction, resulting in substantial costs for the buyer.
Identifying Additional Risks
Other risks in the export/import process include timing issues, currency fluctuations, local tax legislation, and customs regulations. Buyers and sellers must remain vigilant and well-informed to mitigate these risks effectively. It is advisable to utilize the expertise of legal and aerospace professionals who specialize in the intricacies of international aviation law.
Burgess advises that bridging an aircraft from its existing registry to the purchaser’s registry is not always a straightforward task. For instance, navigating between the registries of Denmark and Venezuela requires navigating additional hurdles, as some countries demand an Export Certificate that may not be readily available from all regulatory agencies.
In summary, while cross-border aircraft transactions present exciting opportunities in the expanding global aviation market, they also come with a plethora of challenges that require careful consideration and expertise. The evolving landscape necessitates a solid understanding of airworthiness regulations, compliance requirements, and the potential pitfalls that can arise at any stage of the transaction process. The intricate nature of these transactions underscores the value of seeking professional guidance, whether through a seasoned aviation legal group or industry experts specializing in aircraft acquisitions and international sales. For further insights into aviation audits and more on industry best practices, following links such as aviation audit can be valuable resources.
Disclaimer: This article provides general information and should not be considered legal advice. For specific guidance related to aviation law and transactions, individuals should consult a qualified aviation attorney or legal expert.