(This article is a reprint of my February 2020 blog post for Aviation International News’ AINsight series)
In the business aircraft broker community, we bandy about the word pedigree as a badge of honor. We certainly feel as an industry that value is added when the right pedigree is associated with an aircraft offering, including as fewer number of owners since new, location of operation, records kept with keen detail and completeness, who has been maintaining the aircraft, and any history of repairs. These all stack up to create the story around pedigree.
I started to think recently that pedigree needs to be broadened when considering the overall value of a transaction. Just think for a moment of the other direct and indirect players involved. After all, I have always said our business is more about the people than the equipment.
So how should one begin to rate the pedigree of the rest of the participants in a transaction? What weight would you give those participants in a deal structure? With what willingness would you want to bring a great client into a group of people making up the structure of the transaction that might not be good actors? Let’s talk for a minute about the elephant in the room: representation pedigree.
There is a phenomenon that occurs whenever transactions get reduced due to market slowdowns. Many actors who act as brokers and acquisition specialists begin to operate in what can look very unprofessional and create terrible experiences for those involved, given the seriousness of the investments. They should be handled with a seriousness that leaves everyone in the transaction feeling it was a professional, ethical, and transparent process.
Today we are internally beginning to actually rate the representation pedigree along with the aircraft and ownership pedigree. As we stack up aircraft to consider for a client in an acquisition project, we give a score to who is representing the aircraft for sale.
If we know that the character and reputation of the broker is suspect, we might very well take an otherwise capable aircraft for consideration and footnote for our client discussion that reluctance to approach this offering based on what we know could complicate and even destroy a successful acquisition. We also use the same rating system when we are approached by a broker on the buy side that comes to us with an offer on an airplane we have to sell. Never in all my 46 years in this business have we taken this added step to identify what could be a problem transaction, in advance of the problem, just based on the reputation of the person or company representing the other side.
Some of the pitfalls to recognize can be a lack of depth in knowledge of the equipment that is being represented for sale. This occurs when the hired representative does not ever travel to the aircraft they have for sale. They have not read the records or do not even know what records exist.
Another giveaway of a problem transaction could be if the other side asks our side to pay them. Making matters worse, they will not let the requested payment amount be disclosed in a contract. One thing for sure we know from experience is when the other side needs to be paid by our side, they have no real relationship with their side.
And when things get tough in a deal and usually in every deal at some point they do, that person who is not getting paid by their side will have no benefit to the transaction to sort out the rough spots should they occur. Is it just me or is it getting crazier out there?