Here is my nomination for the “most overlooked important issue in an aircraft purchase agreement”: What exactly is the seller selling and the buyer buying?

I often see purchase agreements that have a definition of “Aircraft” in the definition section that reads as follows (paraphrasing):

Sometimes the definition will go into more detail by referring to a schedule to the purchase agreement which will contain APU and landing gear model and serial numbers. Sometimes the definition will also have a reference to “all associated aircraft documents.”

Now, if the aircraft is off lease, parked and available for inspection by the buyer, maybe the above summary description will not lead to any material disagreements later (although I would add to the above definition “in the condition as inspected by buyer on [date]”).

But if the aircraft is on lease and is being sold subject to lease or being sold upon return from lease then I think it is very important for both the buyer and seller (especially the buyer) to insist on a detailed description of the aircraft in the purchase agreement.

Keep in mind that most purchase agreements do not have a delivery condition or delivery inspection section. At most the purchase agreement will have a provision saying the buyer is not obligated to buy the aircraft if the aircraft has suffered damage in excess of an agreed threshold since the buyer’s inspection signoff. So, if an issue arises at closing about what is included with the aircraft, the buyer will have no “out” from its obligation to buy the aircraft.

When the aircraft being purchased is subject to lease, an acceptable shortcut description for the aircraft may be as follows (paraphrasing):

But of course then you need to be satisfied with the description of the aircraft in the lease documents. Hopefully the acceptance certificate in the lease has a LOPA, loose equipment list, document list, etc.

A real life example: I was doing due diligence on an aircraft purchase where the aircraft was subject to a lease and was going to remain on lease after purchase. The aircraft had been purchased by the seller new from the manufacturer as part of a sale-leaseback with the lessee. The lease agreement had the generic return condition requiring the aircraft be in the same configuration at return as at delivery, but otherwise the lease had no description of the aircraft (not really surprising given the aircraft was ordered from the manufacturer by the lessee). The lack of information about the aircraft was making me nervous and then I looked at the lease acceptance certificate and saw that the aircraft was delivered from the manufacturer with no passenger seats. When I kicked this issue back to the commercial people it turned out that neither the buyer nor the seller had realized that the aircraft was going to be returned from the lessee with no seats (and the lessee was well aware of this fact).

If you conclude that a detailed description of the aircraft is needed in your transaction, the next questions are (1) who is going to prepare the description and (2) how detailed does it need to be. I think the description has to be a joint effort between legal and technical and in most cases it can consist of references to existing documents, with the level of detail to be determined on a case by case basis–the goal not being absolute precision, but to avoid surprises later on.

Finally, if the aircraft is being sold subject to lease, you should consider whether you need/want the lessee to confirm (in the novation agreement) the agreed description of the aircraft.