Originally published as a blog for AINsight for Aviation International News on 11/5/21
It is a funny thing, trust and confidence. Neither happens by accident and if it does it’s usually not sustainable. I sometimes hear from a prospective buyer, “bring me an airplane, and if I buy it I will pay you.” A seller may say, “I don’t want to lock my plane up, whomever brings me a buyer I will pay.” Now remember, those who can afford private jets very typically are very astute people. Yet when I hear the above comments about a lack of commitment to an industry professional it makes me wonder.
It is so much smarter to have someone in a transaction who is on your side working for you and not being driven to work for themselves instead. After all, if you are not committed to the partner, they will not be committed to you. That lack of commitment can be very costly. Back-to-back transactions can be filled with extra hands and little or no transparency. Full disclosure is imperative in a complicated transaction. In fact, given the number of first-time buyers entering the market, the idea of extra communication is vital to the buyer.
In our firm, we go above and beyond to make sure we are involving the buyer at every level. Surprises are so problematic. As prospects scramble to get to a year end finish line, I see great minds begin to work with a bit of mushiness. Worse still I see some aviation professionals even support the weaker due diligence. I think deadlines can be drivers for failure rather than success. If the only measure of success is making a transaction have an in-service target for bonus depreciation, then the next year could prove really bad as maintenance and paperwork issues that should have been flushed out well in advance of the sale come to light.
This could turn a new generation of buyers into thinking this is how our industry works. Nothing could be farther from the truth. Imagine buying a plane, taking it post-closing to a 135 operator to add to their certificate only to find out the FDR or the fire blocking is not correct and there are no 8130 parts tags for traceability. The cost could be prohibitive. These are the types of missed due diligence we are hearing about as buyers focus with their sales professionals only on an in-service date.
We are actually not taking on new clients who want that guarantee of bonus depreciation as a mandate. Instead, I am coaching the new clients to be willing to wait until the first of the year when the buying frenzy will no doubt slow some and the pricing may be more logical. I am not saying that much of the prices for pre-owned aircraft will not stay higher than they have been, but the horse races may be over. After all, once the corporate buying and selling begins again there will no doubt be a few more of each type of aircraft available for sale. Even a slight shift in supply and the lure of a date certain closing to capture a tax play goes away the world of buying just may get to be a bit easier and smarter.
As I mentioned, at our firm we are working hard to not just capture tax plays but buy and sell great aircraft. My sense is that the amount extra someone is willing to pay for an opportunity to capture that tax consideration will not remain as a value add on the worth of the aircraft. We need to all be very good stewards of our industry and maintain the high due diligence standards as well as guide our clients to make smart, strategic acquisitions. We all have to earn our clients’ ears!