Buying a chopper
New Zealand is said to have the highest number of helicopters per capita in the world, which is quite staggering: about half of them operate in the tourism industry. So changes in ownership (i.e. sales and purchases) are a fact of life. Whether you are a buyer or a seller, you want to make sure that it is done correctly - both from operational and legal perspectives. In this post, we highlight 10 key legal points that we see as critical when preparing a sale and purchase agreement for a helicopter and similarly sized private aircraft.
- Price - In a simple world, the purchase price should be paid in one sum on closing. However, the parties may want variations as to how the purchase price is paid. For example, if there are going to be further works carried out on the aircraft, the buyer may be willing to pay a deposit to the seller to enable those works. In overseas jurisdictions - especially in the States - it is often standard to see an escrow agent engaged to receive the purchase price and then release it on closing (and as part of closing, the escrow agent may also effect the transfer of ownership by submitting the relevant registration and/or security release documents).
- Pre-inspections - The details of any pre-purchase inspection including how and when it is to be conducted can be recorded in the sale and purchase agreement. Alternatively, inspections can be undertaken before any decision to enter into an agreement is made. On settlement, it isn’t unusual for the seller to give a warranty that the condition of the aircraft is in no worse condition than it was when the buyer carried out the pre-purchase inspection. There may be additional inspections before the sale (e.g. after completion of “further works” as discussed below).
- Further works - If appropriate, the buyer can ask the seller to carry out further works on the aircraft before it changes hands. The seller’s appetite to do so would depend on the price and, if the aircraft is being exported, meeting any local deregistration requirements. Any further works should be recorded as specifically as possible, and the sale and purchase agreement should include a list of any new equipment that is to be installed as part of such works.
- Damage - The buyer would typically insist on a damage clause providing that if any damage occurs to the helicopter before closing, the seller must notify the buyer in detail of that damage. The buyer will then have the option to either terminate or require the seller to fix the damage before closing.
- Securities searches - A private aircraft is often purchased with financing and the financiers will have registered their security interests over the aircraft or its legal owner in the local Personal Property Securities Register and/or on the International Registry of Mobile Assets (under the Cape Town Convention and Aircraft Protocol). Not all financiers or sellers are subject to the Cape Town Convention, so the buyer should check with its adviser and carry out the required local and international public searches. The public searches cost a nominal fee and will confirm what third party interests are registered over the aircraft. These will need to be released by the seller on closing.
- Acceptance certificate & bill of sale - These are ancillary standard legal documents the forms of which are typically annexed to the sale and purchase agreement. The buyer generally provides an acceptance certificate to the seller, although the scope of such certificate (i.e. that the buyer confirms that the aircraft is in airworthy condition etc) is typically negotiated. The seller also provides a bill of sale on closing to the purchaser, which document evidences the sale of the aircraft (to third parties) without disclosing commercially sensitive information that may otherwise be in the sale and purchase agreement. For example, the bill of sale may be used as evidence of ownership when deregistering and reregistering an exported aircraft.
- Warranties - The parties will negotiate a suite of warranties to be provided as part of the sale. At a minimum, the buyer should ask for warranties relating to legal title and authority (to sell), clean title and no encumbrance over the asset, and the condition of the aircraft (see “Pre-inspections” above). Another warranty-related clause is for the seller to transfer all third party warranty covers over the aircraft and its parts to the buyer and, if such transfer is not legally or contractually permitted, to hold the warranty covers on the buyer’s behalf.
- Export - If the helicopter is changing jurisdictions, the sale and purchase agreement should record what each party is expected to do in relation to the export. Often, the seller must, as part of closing, obtain an export certificate of airworthiness issued by the local aviation authority. The seller’s obligation generally stops there, and the buyer would arrange for the export of the aircraft to the final destination and procure its registration in the new jurisdiction.
- GST - If the aircraft is being exported, tax rules may allow the sale to be zero-rated for GST (or VAT) purposes. This will need to be considered on a jurisdiction-by-jurisdiction basis, and the buyer should confirm the position with local tax advisers. If the buyer is importing the helicopter, then GST may be payable on importation.
- Risk & insurance - The sale and purchase agreement should record when the ownership and risk in the aircraft pass to the buyer. These do not have to be at the same time. The buyer may want the ownership in the aircraft to pass on payment of the purchase price, but may not want the risk to pass until the aircraft is “delivered” to the purchaser whether on closing or after it. The debate around this issue is often resolved by the seller agreeing to extend the insurance over the aircraft until the risk passes to the buyer.
The costs of purchasing, maintaining and insuring a helicopter can be significant. Thoughts should be given to whether a leasing or chartering arrangement might more efficiently meet a buyer’s requirements. Given the special and substantial value of the asset class, both the buyer or the seller should consider all legal and operational/commercial factors before committing to any sale.