Aircraft are still hard to find and good ones even harder. This places a unique burden on the buying process. When do you decide that the aircraft you are pursuing is not worth pursuing? In the appraisal world, a term that is used for determining value is the price a willing seller and a willing buyer would pay for the item being appraised. Learn the red flags and how to know when to hold and when to fold when going through the buying process for an aircraft. You want a plane and perhaps even have a tight in-service timeline. You are ready and perhaps have already missed one or two suitable aircraft. As a buying agent, you are getting the message that they are now eager. But being too eager can cause problems. It is your job, as the buying agent, to place reason back into the purchase process. We went through this in 2021 with a strong seller's market with sellers demanding they would not allow any sort of pre-buy. This is reckless and can be a source of huge amounts of money spent cleaning up the aircraft. In my opinion, I also think it is reckless by the seller to not allow at least some kind of pre-buy.RELATED STORIES:Business jet deliveries stabilize in 2022Everything you need to know about aircraft maintenance when you are buying a planeThankfully most of that is behind us. However, there are factors, or red flags, in today's market that still can be a reason to pump the brakes or even walk away. The phrase used by economists is "sunk costs". You have spent so much time and energy that to walk away feels like a big loss. The question becomes, but is it really? The more important question is were there enough signs that you should have walked before experiencing the sunk costs?
In the offer and Letter of Intent (LOI) phase, we like to call that the dating phase of the process. If the dating phase is not going well, the engagement phase is more than likely not going to get better. And likely, the final marriage stage during the pre-buy will be rough. Excessive demands on that initial dating phase are not going to get any easier as the deal progresses. There is nothing wrong with negotiating a strong LOI with details and timelines. That is the best time for everyone to make sure they are on the same page and can lead to a fair purchase agreement and a smooth pre-buy and eventual closing.However, if the demands are excessive and one-sided it should be a red flag. If they are unwilling to be fair at this stage of the game it will not get better when you get to the final contract and later when there are airworthy squawks. Sometimes sellers and their brokers like to put up a strong front trying to limit expectations. Often, this is just a negotiating tactic to try and limit the asks in the LOI and pre-buy. But if you sense they are serious, be prepared for a very difficult transaction. This might be the time to just back away and patiently find a willing seller. In other words, fold'em.Another red flag is when the seller tells you that they will only accept their purchase agreement they have used and with no changes. Perhaps it is fair, but perhaps it is very one-sided. If this is their plan, then you need to see their agreement before you get to the LOI and deposit stage because there just might be some items that your legal department cannot live with. It is better early to find out if it will work. It may cost a little extra in legal fees but you have not wasted time and possibly missed another aircraft that comes on the market while wasting time on a potential dead end.Buy an aircraft today on GlobalAir.com
A possible flag is the seller is having difficulty in getting standard items, like CAMP reports. They are easy to run and can help the buyer prepare for their visual inspection and high-level log book review. Another caution is not allowing any pre-buy. However, placing restrictions limiting a normal pre-buy can also be a red flag. Claiming that the aircraft just came out of major maintenance does not always mean that the particular inspection inspected a particular area of the aircraft that is prone to issues, for example, the wet areas. Not all major inspections are designed to find areas that may be of concern for that make and model of aircraft at that inspection interval.Until you know the full scope of the work order you will not know. Along these lines, if the seller is insistent on the inspection being the pre-buy, they should be willing to share the full work scope and findings in the work order. As a reminder, the work order may point to items that are marginal but do not show up in the log books. While they are not airworthy as they are signed off, it is good to know what they are and possible large expenses that might come up soon. These could be big enough to change your valuation.
The bottom line is, before you get in too deep and your "sunk costs" get too high, it might just be better to pass and wait for a better opportunity.