How to Buy a Commercial Aircraft: A Legal Guide for Buyers

Purchasing a commercial aircraft is one of the most significant investments a company can make. Whether you are an airline acquiring a new addition to your fleet, a lessor building your portfolio, or an MRO investing in a platform for part-out, the legal complexities of an aircraft purchase transaction require careful navigation. This guide walks you through the key legal steps and considerations involved in buying a commercial aircraft.

Step 1: Define Your Acquisition Strategy

Before engaging legal counsel, buyers should define their acquisition objectives. Key considerations include whether to purchase new or used aircraft, the intended use (operation vs. leasing vs. part-out), the desired ownership structure (direct ownership, trust, SPV, or Section 1110-eligible entity), and the financing method (cash, secured lending, or operating lease). Each of these decisions has significant legal, tax, and regulatory implications that will shape the entire transaction.

Step 2: Conduct Preliminary Due Diligence

Due diligence is the cornerstone of any aircraft acquisition. Before signing a purchase agreement, buyers should conduct a thorough investigation of the aircraft, including:

• FAA title search: Verify the chain of title, identify any liens, encumbrances, or security interests recorded against the aircraft with the FAA Aircraft Registry in Oklahoma City.

• International Registry search: Check for registered interests under the Cape Town Convention, including International Interests, Prospective International Interests, and assignments.

• Maintenance records review: Examine the aircraft's maintenance history, airworthiness directives compliance, service bulletin status, and life-limited component tracking.

• Insurance verification: Confirm current hull and liability coverage and review policy terms for any exclusions or limitations.

• Tax analysis: Assess state sales and use tax exposure, potential federal tax implications, and any available exemptions based on the intended use and location of the aircraft.

Step 3: Negotiate the Letter of Intent (LOI)

Most aircraft transactions begin with a Letter of Intent or Term Sheet. While typically non-binding (except for exclusivity and confidentiality provisions), the LOI establishes the key commercial terms that will govern the transaction, including the purchase price, deposit amount and escrow arrangements, delivery conditions and location, the inspection and acceptance process, closing timeline, and any conditions precedent to closing. A well-drafted LOI saves significant time and cost during the definitive agreement stage by ensuring both parties are aligned on material terms before attorneys begin drafting.

Step 4: Draft and Negotiate the Aircraft Purchase Agreement

The Aircraft Purchase Agreement (APA) is the definitive document governing the sale. Critical provisions include:

• Purchase price and payment terms: Wire transfer mechanics, escrow arrangements, and any price adjustments based on maintenance status.

• Representations and warranties: Seller's representations regarding title, airworthiness, absence of liens, accuracy of records, and compliance with applicable regulations.

• Conditions precedent: Requirements that must be satisfied before closing, such as satisfactory inspection results, clean title search, delivery of a warranty bill of sale, and regulatory approvals.

• Delivery and acceptance: Physical inspection procedures, technical acceptance criteria, and the process for documenting delivery and risk transfer.

• Indemnification and limitation of liability: Allocation of risk between buyer and seller for pre-closing and post-closing liabilities.

Step 5: Pre-Purchase Inspection

The pre-purchase inspection (PPI) is a critical stage where the buyer (typically through its designated MRO) physically examines the aircraft and its records. The scope of the PPI should be clearly defined in the purchase agreement and may include a visual and borescope inspection of the engines, a detailed records review including back-to-birth traceability of life-limited parts, non-destructive testing (NDT) of structural components, and functional checks of avionics and systems. The purchase agreement should address who bears the cost of the inspection and what happens if discrepancies are found, including whether the seller has a right to cure or whether the buyer can terminate.

Step 6: Closing the Transaction

Closing an aircraft purchase requires coordination of multiple simultaneous actions. Key closing deliverables typically include:

• Warranty Bill of Sale (FAA AC Form 8050-2): The primary conveyance document filed with the FAA.

• FAA Aircraft Registration Application (AC Form 8050-1): Filed by the buyer to register the aircraft.

• International Registry filings: Discharge of seller's interests and registration of buyer's interests.

• Delivery receipt and technical acceptance certificate: Documenting the buyer's acceptance of the aircraft.

• Wire transfer of purchase price: Coordinated with escrow agent upon confirmation of all conditions precedent.

Step 7: Post-Closing Considerations

After closing, several important steps remain. The buyer should confirm that the FAA has processed the registration and that the new Certificate of Aircraft Registration has been issued. Any International Registry interests should be verified as properly recorded. Insurance coverage should be transitioned from the seller's policy to the buyer's policy effective as of the delivery date. If the aircraft will be operated under Part 121 or Part 135, the buyer must ensure the aircraft is added to the applicable operating certificate before commencing revenue service.

Why Work with an Aviation Transaction Attorney?

Aircraft transactions involve a unique intersection of contract law, federal aviation regulations, international treaty obligations, tax considerations, and commercial realities. An experienced aviation transaction attorney can help you structure the deal to minimize risk and tax exposure, negotiate favorable terms in the purchase agreement, coordinate with the FAA Aircraft Registry and International Registry, manage the closing process to ensure all conditions are satisfied, and protect your investment with proper documentation.

At Aviation Transaction Advisors, we have extensive experience guiding buyers through every stage of the aircraft acquisition process. Our boutique approach means you get personalized, senior-level attention from attorneys who understand both the legal and commercial dimensions of your transaction. Contact us to discuss how we can assist with your next aircraft purchase.