Dreaming of Buying a Plane?

Once considered an endeavor reserved for the ultra-wealthy, buying an aircraft is actually a fairly common event. Whether you are interested in a Piper J3 Cub, a Gulfstream G650, or something in between, there are a many justifications for purchasing an aircraft, particularly in this economy. 

Many purchasers cite a motivation to reinvest in their business, while proving an asset to depreciate. Others worry about growing inflation as a reason to lock in ownership in a tangible asset. Some point to the desire to travel privately in the age of COVID. Still other buyers see how travel by private aircraft saves significant time as compared to traditional travel on the airlines. Whatever the reasons might be, aircraft ownership is probably more accessible than you might imagine. Still, there are a lot of moving parts to work your way through before bringing that plane to its new home base. 

Starting your search for the right aircraft likely begins with identifying your intended use. Is the aircraft going to be used for fly-ins and the ocasional $100 hamburger? Or will this be a method for you and/or your company to become more efficient while improving quality of life? Regardless of the reasons, there are some things you should know before making an offer on an aircraft. 

In helping to identify the right plane for you or your company, you’ll need to know what the true cost of ownership is for any given candidate. Of course, this goes beyond the purchase price. There are fixed and variable costs to consider. These will include the actual cost of operation, usually calculated per flight hour. Will the costs of insurance for the aircraft and the flight crew be within reason? Is there a hangar available at the preferred airport? Will the costs of ownership be borne by an individual, a company or an owner group? What are the sales and use taxes that need to be considered? Will the aircraft be depreciated? Will financing be required? These are only a few of the factors a buyer should be considering. 

After the intended use and potential costs have been evaluated, the next task is to identify an aircraft that can fit the buyer’s needs and within the estimated budget. With the very tight aircraft market we’re seeing at this time, it could be that you’ve found your chosen plane through an aircraft broker. Perhaps the candidate for acquisition was identified by word or mouth. Or, maybe, you found the aircraft on one of the many websites, advertising planes for sale. However you found the right aircraft, you’ll want to demonstrate some level of commitment to the seller, either through a letter of intent, a deposit with an escrow company, or both.  Next comes the purchase agreement, followed by a test flight, and a pre-purchase inspection of the aircraft. Finally, if the aircraft is airworthy or brought up to specs during the inspection process, closing will be scheduled. In aircraft transactions, this can usually take place very soon after the inspections. For this reason, financing should already be in place so as not to hold things up. 

While purchasing an aircraft can involve a lot of activity in a compressed period of time, the right team can make the transaction go smoothly. Selecting the right legal counsel to oversee that team, can take the pressure off of an otherwise involved transaction. If aircraft ownership is something you’ve dreamed of, give us a call and let’s see if we can get you airborne. Even if full ownership seems intimidating, we can discuss alternatives that might satisfy your goals without the same level of commitment.

Travel by Private Aircraft

For economic and health reasons, it seems that business and personal travel by private aircraft is at an all-time high. While the appeal of this form of travel tempts many people, passengers should be aware that there is more to private flying than showing up at an airport with bags in hand. Safety, legal and financial considerations must also be taken into account. Navigating through these considerations requires a level of experience and sophistication that is often beyond the typical traveler’s reach. Accordingly, it is imperative for individuals and businesses wishing to travel on private aircraft to assemble the right team before embarking on a venture into the wild blue yonder.

 Most often, flying a non-owned, private aircraft is accomplished through “dry leasing” an airplane from an owner who wishes to offset operational costs. In short, this means that the lessee directly hires the flight crew and is ultimately responsible for initiating, conducting and terminating any given flight. Collectively, these responsibilities are defined as exercising “operational control.” And although a written dry lease will usually be drafted to define the rights and responsibilities of the parties, the Federal Aviation Administration (“FAA”) makes it clear that even more important than what’s in a written dry lease is how the aircraft is operated. Specifically, the FAA released an Advisory Circular, 91-37B, meant to give lessees information in order to recognize and avoid agreements where operational control is not clearly maintained by the lessee. 

Using AC91-37B as the gold standard, the FAA has increased its enforcement efforts against parties entering into “sham dry leases.” Such leases are meant to give the appearance of a true dry lease; however, the intent of the parties may be to evade FAA scrutiny over the safe operation of air travel that might otherwise fall under commercial air travel. Where the FAA suspects sham dry leases and/or illegal commercial charter operations, the FAA has the authority to investigate and penalize violators through civil, and sometimes criminal penalties. Additionally, the FAA can suspend or revoke certificates of involved flight crew members. Hence, it’s not just lessors and lessees who should be concerned about compliance with FAA regulations when private air travel is concerned. 

At Erickson|Sederstrom, our aviation group has the tools to help clients involved in private air travel. From consulting to acquisition and operation, we can guide you through this complex area of law safely and effectively. Call today to see how we can help.

Federal Grant Funds Available for Communities to Improve Airfare and Air Service.

          The Department of Transportation (“DoT”) today announced a solicitation of proposals from communities seeking federal grant money to assist with the improvement of the community’s airfare and air service. The DoT is offering a total of $10 million in grants under its Small Community Air Service Development Program (“SCASDP”) to be disbursed to up to 40 communities, consortia of communities, or a combination of either (“Communities”).

           The SCASDP grants are to be used to implement improvements of the Community’s airfare and air service. This year, the DoT has a total of $10 million available in fiscal year 2017 (October 1, 2017 to September 30, 2018) to distribute in the form of grants to up to 40 Communities in order to implement improvements proposed by the applicant. There is no limitation on the amount of the grant awarded, but past awards have ranged from $20,000 to $1.6 million. Of the 36 SCASDP applicants in 2016, only nine grants were awarded to Communities in seven states.

          Those Communities eligible to receive the grant include those with airports that are not larger than a small hub airport, have inadequate air carrier service or high airfares, and have an airport for their Community that exhibits a need for grant assistance. Groups of communities are eligible if they are working jointly to accomplish the same goal and fit into the aforementioned categories.

          Importantly, the grants cannot be used for capital improvements. So runway expansions or resurfacing, construction of new hangars, etc. are not eligible improvements under the SCASDP. While there are several available uses for the grants, one of the more interesting is that grants are available for an underserved airport to carryout measures that are deemed to be useful in improving air service regarding the cost of air service to consumers and the availability of that service. This includes improving marketing and promotion of air services.

          As in 2016, the DoT will give priority to those Communities where: airfares are higher than the average airfares for all communities; a portion of the cost of the activity contemplated by the community is provided from local, non-airport revenue sources; a public-private partnership has been or will be established to facilitate air carrier service to the public; improved service will bring the material benefits of scheduled air transportation to a broad section of the traveling public, including businesses, educational institutions, and other enterprises whose access to the national air transportation system is limited; the funds will be used in a timely manner; and multiple communities cooperate to submit a regional or multistate application to consolidate air service into one regional airport.

          Communities that are currently receiving air service under Essential Air Service (“EAS”) or Alternate Essential Air Service (“AEAS”) are not eligible for SCASDP grants. Grant applications must be submitted no later than December 15, 2017 by 4 p.m. eastern time.

          For more information on SCASDP, EAS, AEAS and other state and federal grant programs relating to aviation, or for assistance with the grant application and determining your Community’s eligibility, please contact Tiernan Siems with Erickson | Sederstrom.