Introduction
Aircraft sales involve complex legal frameworks to ensure compliance, mitigate risks, and protect buyers and sellers. Unlike standard vehicle transactions, aviation deals are governed by international treaties, federal regulations, and contractual nuances that vary by jurisdiction.
This article examines the key legal considerations in aircraft sales, including:
- Essential contract clauses
- Regulatory compliance (FAA, EASA, ICAO)
- Title transfers and escrow
- Tax implications
- Dispute resolution mechanisms
Understanding these elements helps buyers, sellers, and brokers avoid costly legal pitfalls.
1. Aircraft Purchase Agreements: Key Contractual Terms
A well-drafted Aircraft Purchase Agreement (APA) minimizes disputes by clearly defining obligations. Critical clauses include:
1.1 Description of the Aircraft
- Make, model, serial number, and registration details
- Included/Excluded components (engines, avionics, spare parts)
1.2 Purchase Price & Payment Terms
- Deposit requirements (typically 10% in escrow)
- Payment milestones (pre-purchase inspection, closing)
- Currency and tax allocation
1.3 Pre-Purchase Inspection (PPI)
- Who conducts it (buyer’s/seller’s chosen facility)
- Acceptance criteria (airworthiness, logbook completeness)
- Inspection-related costs (who pays for discrepancies?)
1.4 Representations & Warranties
- Seller’s assurance of clear title (no liens or encumbrances)
- Disclosure of past accidents, damage history, and ADs (Airworthiness Directives)
1.5 Closing & Delivery Conditions
- Transfer of registration (FAA Bill of Sale, EASA CoA)
- Physical delivery location (tax implications)
1.6 Default & Remedies
- Breach consequences (forfeited deposit, specific performance)
- Liquidated damages clauses
2. Regulatory Compliance in Aircraft Sales
2.1 FAA (U.S.) & EASA (Europe) Requirements
| Requirement | FAA | EASA |
|---|---|---|
| Title Transfer | FAA Bill of Sale (AC Form 8050-2) | EASA Certificate of Airworthiness (CoA) |
| Registration | N-number assignment | G, D, F, etc., based on country |
| Export/Import | FAA Export Certificate (for non-U.S. buyers) | EASA Form 1 for components |
2.2 International Considerations (ICAO, Cape Town Treaty)
- Cape Town Treaty: Protects financiers via an international registry for aircraft liens.
- Bilateral Agreements: Some countries impose import duties (e.g., Brazil’s 18% tax on foreign aircraft).
2.3 Airworthiness & Maintenance Compliance
- FAR Part 91 vs. Part 135: Different operational rules affect sales (e.g., commercial vs. private use).
- Mandatory Modifications: ADS-B, RVSM compliance may be required before transfer.
3. Title Searches & Escrow
3.1 Why Title Searches Matter
- Liens & Encumbrances: Unpaid loans, mechanic’s liens, or legal disputes can cloud title.
- Fraud Prevention: Fake or duplicate titles are rare but possible.
3.2 Role of Escrow Agents
- Hold funds until conditions (PPI, registration transfer) are met.
- Verify FAA/EASA documentation before releasing payment.
4. Tax Implications in Aircraft Sales
4.1 U.S. Sales Tax (State-by-State Variations)
- Delaware & Montana: No sales tax (common for LLC registrations).
- California & New York: High sales/use taxes (up to 8-10%).
4.2 VAT & Import Duties (International Sales)
- EU VAT: Typically 20% (unless leasing or exempt).
- Brazil, India, China: High import duties (15-30%).
4.3 Depreciation & Capital Gains
- Bonus Depreciation (U.S.): Accelerated write-offs for bizjets.
- Capital Gains Tax: Applies if the aircraft appreciated in value.
5. Dispute Resolution & Common Legal Pitfalls
5.1 Common Disputes
- Misrepresented Aircraft Condition (undisclosed damage, logbook gaps)
- Title Defects (undisclosed liens, ownership disputes)
- Regulatory Non-Compliance (failed PPI, invalid CoA)
5.2 Resolving Conflicts
- Mediation/Arbitration: Faster and cheaper than litigation (common in broker agreements).
- Litigation: Rare but necessary for fraud or major breaches.
5.3 How to Mitigate Risks
- Use a reputable aviation attorney for contract drafting.
- Conduct a thorough title search via FAA/International Registry.
- Require seller warranties in the APA.
6. Case Study: A Costly Legal Mistake
A buyer skipped a title search and later discovered a $2M lien from a previous owner’s unpaid loan. Litigation delayed the sale by 18 months, costing $300K in legal fees.
Lesson: Always verify title and use escrow!
7. Conclusion: Best Practices for a Smooth Sale
- Draft a detailed APA with clear terms.
- Verify compliance (FAA/EASA/ICAO).
- Conduct a title search and use escrow.
- Plan for taxes (sales tax, VAT, import duties).
- Consult an aviation attorney before signing.
By addressing these legal aspects upfront, buyers and sellers can ensure a secure, compliant, and dispute-free transaction.