Private aircraft deals can be complex and are subject to both civil aviation regulations and commercial contract law. That is why we have invited two well-versed professionals to chat: Cassandra Nicole Thomazios, who practises aviation law, and Nikesh Chahal, an experienced aviation consultant. They are here to share their knowledge and insights, making the world of aircraft sales a bit clearer for all of us.

Nikesh Chahal is the legal director at Chahal Aviation, a boutique consulting firm, that operates within the business aviation industry across Asia and international markets. Known for its specialized knowledge in aircraft transactions, financing, and maintenance engineering, Chahal Aviation offers a range of management and consulting services in both business and commercial aviation. Focusing on the intricate aspects of aircraft value and industry dynamics, Chahal Aviation plays a significant role in advising and guiding stakeholders through each step of the transaction process. The firm is recognized for its commitment to building strong, trust-based relationships with clients, emphasizing a deep understanding of the aviation industry’s evolving landscape.

Cassandra Nicole Thomazios is a partner at the law firm of MahWengKwai & Associates. In addition to her practice in aviation law, Cassandra heads the firm’s Corporate and M&A team. She primarily advises on corporate and commercial matters ranging from private limited companies, public listed companies to multinational companies and has been largely involved in corporate regulatory advice, drafting corporate documents, project agreements including advising and negotiating on M&A transactions. Cassandra has advised on and led several legal due diligence exercises in both corporate and aviation matters including the drafting of sale and purchase agreements.

Q: What are the initial steps both buyers and sellers should consider in a private aircraft transaction?

Nikesh Chahal: 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.

Q: What legal considerations are paramount at the outset of a private aircraft transaction?

Cassandra Nicole Thomazios: From the outset, ensuring that the aircraft’s title is clear and free from any liens or encumbrances is essential. Buyers should consider drafting a Letter of Intent (LOI) to outline preliminary terms and expectations. It is also prudent to be aware of any jurisdictional considerations, taxes, or duties that might apply, especially in cross-border transactions.

Engaging in proper due diligence can prevent potential legal complications down the road as well. A legal, technical, mechanical and financial due diligence should be carried out before purchasing or leasing an aircraft.

Legal due diligence encompasses the evaluation of an aircraft’s compliance with regulations established by the Civil Aviation Authority of Malaysia (CAAM) and the Malaysian Aviation Commission (MAVCOM). CAAM is responsible for regulating safety, maintenance, security, and enforcement, while MAVCOM oversees economic and commercial aspects of civil aviation in Malaysia. Certificates such as the Air Operating Certificate (AOC) from CAAM and Air Services License (ASL) or Air Services Permit (ASP) from MAVCOM are crucial regulatory compliance documents examined during this process. The identification of potential liabilities is also a key facet of legal due diligence.

Technical and mechanical due diligence involves a comprehensive assessment of an aircraft’s maintenance logbooks, airworthiness, and related technical aspects. Financial due diligence encompasses reviewing the aircraft’s financial history, including any outstanding loans or debts that might impose unforeseen financial liabilities for the purchaser.

It is crucial to compile and meticulously review all essential documents before proceeding to subsequent stages of the transaction to prevent potential issues that may arise further down the line. This precautionary approach aims to avert complications and ensure a smoother transactional experience.

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

Nikesh Chahal: 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.

Q: What are the potential legal pitfalls during the assessment and valuation stage?

Cassandra Nicole Thomazios: During this stage, incomplete or inaccurate documentation can be a significant pitfall. Incomplete and inaccurate documentation may occur if title searches overlook crucial information about the aircraft’s ownership history or if the maintenance logbook of an aircraft is incomplete.

Overlooking potential encumbrances or liens can result in financial and legal complications. Additionally, any discrepancies between the aircraft’s physical condition and its records can potentially lead to legal disputes. The maintenance logbook’s significance lies in its consistency despite changes in ownership, so if it is discovered to be incomplete during the assessment stage, it significantly impacts the valuation of the aircraft purchase price, which relies heavily on these factors. Thus, ensuring clarity and transparency in the aircraft’s history and documentation is crucial.

Furthermore, there could be instances of non-compliance with regulations or occurrences of misrepresentation and fraud. Neglecting to adhere to CAAM regulations during the assessment phase may lead to complications during the transfer of ownership or registration procedures. Moreover, the provision of false or misleading information by the seller during this phase could potentially trigger legal issues and contractual disputes in the later stages of the transaction process.

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

Nikesh Chahal: 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.

Q: How do legal regulations impact financing and insurance in these transactions?

Cassandra Nicole Thomazios: Legal regulations often dictate the terms and availability of financing. For instance, some jurisdictions have specific laws regarding the age or type of aircraft that can be financed. In Malaysia, there are no specific laws or regulations that explicitly restrict financing based on the age or type of aircraft. However, financial institutions and lenders may establish their own internal policies and criteria regarding the type of aircraft they are willing to finance.

While CAAM focuses on aviation safety rather than financing, its regulations indirectly impact the eligibility of aircraft for financing. Aircraft that meet CAAM’s airworthiness standards and are properly maintained are likely to be more attractive for financing purposes due to their perceived lower risk and higher residual value.

On the insurance front, regulatory compliance, such as licensing or adhering to airworthiness standards, can influence insurance premiums and coverage eligibility. Non-compliance can lead to higher costs or even policy denials. Besides that, insurance brokers would generally require all information regarding the purchased or leased aircraft as well before issuing an insurance quotation prepared by an underwriter.

For example, if the aircraft is purchased for commercial use, approval from MAVCOM and CAAM are required as well as certification of licences for insurance application purposes. However, for aircraft purchased or leased for private use, these specific approvals and certification of licences are not requisite in the insurance process.

Q: Can you highlight the essential elements to include in a sales or leasing contract for private aircraft?

Cassandra Nicole Thomazios: A robust contract should include a clear identification of the parties involved, a detailed description of the aircraft, the agreed-upon price, and payment terms. Provisions regarding inspection, acceptance, and delivery should be outlined, along with any warranties or representations made about the aircraft’s condition. Dispute resolution mechanisms and governing law clauses can also be crucial components of these contracts.

An essential element to include in a sale and purchase or leasing agreement for a private aircraft is a Condition Precedent clause. A Condition Precedent clause may specify compliance with all regulatory requirements and to obtain any necessary permits/licences before the transfer of ownership. Besides that, Condition Precedents may also include conditions related to specific deadlines or milestones for the purchaser to adhere to. If the Condition Precedent is not met within the specified timeframe, the agreement might become null and void. This means the parties are released from their obligations under that particular agreement. Overall, Condition Precedent clauses are used to ensure that both parties are protected by clearly outlining the conditions that must be met for the agreement to move forward.

A force majeure clause may also be essential. The force majeure clause addresses unforeseen circumstances or events beyond the control of the parties. This clause typically exempts one or both parties from fulfilling their contractual obligations when events occur such as natural disasters, acts of terrorism, war, governmental actions, or if a pandemic occurs. Indemnification and Remedies are also essential clauses detailing the remedies available to both parties in case of breaches. Indemnification clauses protect parties against losses due to specific occurrences.

Depending on the nature of the transaction, additional clauses tailored to specific circumstances might be necessary to ensure a comprehensive and enforceable agreement.

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

Nikesh Chahal: 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.

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

Cassandra Nicole Thomazios: From a legal standpoint, our role is to ensure that every transaction adheres to the relevant regulatory and contractual standards. By collaborating with aviation consultants, we gain invaluable insights into the nuanced intricacies of various aircraft models, their maintenance histories, airworthiness assessments, operational intricacies, and compliance specifics. This in turn helps us in drafting precise contracts, ensuring compliance, and addressing potential legal challenges proactively. This collaboration essentially allows us to offer comprehensive legal solutions that are informed by the intricate details of the aviation industry.

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

Wrapping up our chat, it is clear that when it comes to buying or selling private aircraft, having both legal and aviation know-how is key. Both Cassandra Nicole Thomazios and Nikesh Chahal have shown how their expertise comes together to guide a successful deal.

If you are thinking about stepping into the aircraft market, having experts like them by your side is a smart move. A big thank you to our guests for their valuable insights!


Note: This article does not constitute legal advice to any specific case. The facts and circumstances of each and every case will differ and therefore will require specific legal advice. Feel free to contact us for complimentary legal consultation.