Navigating private aircraft transactions interview

August 6, 2024

A Q&A interview between Noushaad Omarjee and Nikesh Chahal - Legal Director at Chahal Aviation, as proud aviation collaborator and partner with Dentons in Africa.

Nikesh oversees all contracting and legal affairs. He possesses a degree in law, and specializes professionally in aviation contract law, leasing, and financing.

He has extensive knowledge in both the commercial and business aviation industries through his work for numerous airlines and business aviation stakeholders.

Noushaad Omarjee (Noushaad): Nikesh, what are the initial steps both buyers and sellers should consider in a private aircraft transaction?

Nikesh Chahal (Nikesh): Before diving into a transaction, both buyers and sellers should conduct thorough research.

Buyers should identify their specific needs to determine the type of aircraft they require, including aircraft size and the number of passengers it intends to carry, its range based on its base, and performance specifications. It's also essential to determine a budget, which can be narrowed down from the above specific needs identified. In addition, buyers will need to see whether this can be paid with cash or if financing is needed.

Sellers, on the other hand, should gather all relevant aircraft documentation, including maintenance records, logbooks, and any warranties. Establishing clear communication and setting expectations early on can pave the way for a smooth transaction process.

Noushaad: How should a prospective buyer assess the condition and value of a pre-owned private aircraft?

Nikesh: A buyer should always start with a visual inspection of the aircraft, which is usually done after the signing of the Letter of Intent (LOI). This inspection should review the aircraft's maintenance history, current condition, damage history (if any), main base of operations and ensure its compliance with aviation standards. Also, cross-referencing the aircraft's specifications, age, and market trends can provide a clearer picture of its value.

Thereafter, the buyer should proceed with a comprehensive pre-purchase inspection conducted by reputable professionals, such as from a Maintenance, Repair and Overhaul (MRO) company, which will determine any damage history, major repairs and modifications, worn parts, corrosion or any other discrepancies.

Noushaad: Could you elucidate the key considerations for financing and insurance in private aircraft transactions?

Nikesh: For financing, buyers should consider interest rates, loan terms, and the lender's reputation, as well as the type of financing that is offered, such as an operational or finance lease. Lenders typically require a thorough inspection and valuation of the aircraft. Lenders will also look at the party that will be managing the aircraft, with a reputable manager giving more comfort to the financier.

When it comes to insurance, it is crucial to understand the coverage specifics, including liability limits, hull coverage, third-party liability, and any geographical restrictions. It is beneficial to work with specialized aviation insurance brokers to navigate these intricacies. In addition, buyers will have to look at considerations of insurance if there is an intention to charter the aircraft after the acquisition.

Noushaad: What is the role of an aviation consultant in ensuring a smooth and legally compliant transaction?

Nikesh: An aviation consultant bridges the gap between the technical and commercial aspects of an aircraft transaction. We work on a client's behalf to ensure that the aircraft meets all technical standards, advise on fair market value, and assist with inspections and evaluations. Our role is to provide expert advice on all aspects of the private aircraft acquisition, connecting reputable sellers with buyers and ensuring buyers make informed decisions so that transactions proceed without hitches. Our strong relationships with MRO's in conducting pre-purchase inspections and subsequent maintenance also allows us to provide the buyer the best options available throughout the entire process of acquiring an aircraft.

Noushaad: How can legal and aviation consulting expertise collaborate to resolve challenges in private aircraft transactions?

Nikesh: On the aviation front, our expertise centres around understanding the aircraft's operational, maintenance, and market aspects. Partnering with legal specialists ensures that our technical insights are translated into robust contractual terms, safeguarding both buyers and sellers. Essentially, our collaboration with legal professionals like Dentons ensures that technical evaluations and assessments are grounded within a solid legal framework, making transactions smoother and more secure for all parties involved.

Noushaad: Thank you Nikesh! Chat again.

Nikesh: Thanks for the opportunity.