Purchasing a Used Aircraft- How to Avoid Frustration

Dr. R. Kurt Barnhart, Indiana State University

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Some Aircraft I’ve owned (individual and shared)

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Buying to Build and Fly OR Buying to Fly?

• Advantages to building– Build to your Taste

– Higher Performance at lower cost

– Enjoyment (for some)

– Great Education

– Performance that certified (“stock”) aircraft don’t have for lower cost (i.e. the RV series.)

• Disadvantages- – Some aircraft can

take years to complete

– Some models may be hard to sell later (also liability may follow you)

– You may not have the patience or skills for building

– Builder support may be inconsistent

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Where to Start?

• Define your mission– How Far do you need to fly regularly?

– How many people do you need to carry?

• Examine how much money you want to spend. (Does your spouse agree?)

• Do your homework– Talk to other pilots, mechanics, like aircraft owners

– AOPA has buyers reports on most popular aircraft and other resources for members at: http://www.aopa.org/members/vref/

Browse the Ads- www.trade-a-plane.com

www.aerotraderonline.com

www.barnstormers.com

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Check the NTSB accident statistics

• www.ntsb.gov click on “Aviation” and then use the “Database” link to search for a particular make and model.

• For Instance The Mean Fatal Accident Rate for a Cessna 172 is 1.41 per 100,000 flight hours and it is 3.24 per 100,000 flight hours for a Cessna 180.

• Cessna’s average is 1.65 while the fatal accident rate for Bellanca is 4.84/100,000 flt. Hrs.

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The Operating Cost Factor

• Don’t assume initial acquisition cost is related to operating cost.

• Certain aircraft are “maintenance pigs”

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Some Factors affecting the Owning and Operating Costs of an Airplane

• Type of operation- pleasure- transportation

• Age of Aircraft

• Number of hours flown

• Maintenance shop rate

• Pilot experience (insurance)

• Taxes

• Fuel prices

• Hangar Prices

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What are those Ads Saying?

• i.e. “1968 C-150, 0 STOH, 985 SMOH, 3587 TTSN, Garmin GNS 400 GPS, All AD’s C/W, Annual with sale, Mode C xpndr, STOL kit, Auto Fuel STC.

• Here is a glossary of terms: http://www.trade-a-plane.com/unprotected/static/glossary.html

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Abbreviations from the previous page

• STOH- (Time, in hours) Since Top Overhaul (top of engine)

• SMOH- (Time) Since Major Overhaul (engine)

• TTSN- Total Time Since New (in hours)

• GNS- Global navigation system

• GPS- Global Positioning System (for navigation)

• AD- Airworthiness Directive (maintenance you’ll have to do)

• C/W- complied with

• XPNDR- transponder

• STOL- Short TakeOff and Landing

• STC- Supplemental Type Certificate

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What the ads are really saying

• Running Strong- Start shopping for a major

• Loaded with gear- has all the junk radios nobody wants

• Fresh paint- sat and rotted for the previous 10 years

• No Damage history- check again

• Everything works- plan on numerous visits to the shop

• Economic Transportation- Owner has no concept of the cost of flying

• Just spent $XXX on annual- owner has learned his lesson and is getting out

• Only burns X.X GPH- was over-leaned and you’ll buy the valves

• Wife says “must sell”- The Only honest one in the group

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So you’ve found one you like:

• Major Factors that affect an aircraft’s value– Total Engine Hours

– Installed Equipment

– Airworthiness Directives

– Damage History

– Paint & Interior

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Some Initial Questions to Ask via Telephone- (you’ll verify the answers

later)• Establish Airworthiness- current annual

inspection, transponder, and pitot static inspections also

• Ask about the logbooks- are they complete? If not, then this reduces the value of the aircraft and you may want to look elsewhere especially if the aircraft is older.

• Get pictures

• Inquire why selling

• Inquire about ownership history

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So you want to look further

• Schedule a pre-purchase inspection- be wary of using the seller’s mechanic, find one yourself.

• Shop for insurance early- are you insurable in this aircraft?– Some insurance considerations:

• Your total flight time• Your total time in type or similar aircraft• Your claim history• Your flight currency level

• Have a Title Search (AOPA, KING, www.aircrafttitlesearches.com etc.) for $50 - $100 to ensure there is no lean on your aircraft’s title

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Financing:

• Will you be financing your purchase? If so, use a lending institution familiar with aircraft.– www.findaircraft.com

– www.iflyamerica.com

– www.airplanedreams.com

– eairplanefinancing.com

– www.aopa.org/info/ip/

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Financing Ctn.

• There may be tax and liability advantages to registering your aircraft to a separate LLC so get this started early.

• Does the lender service the loans after closing?

• Does the Lender do a title search or file forms with the FAA?

• Consider all fees- not just closing costs- they can add up

• Consider the terms- some limit aircraft to 7 years!

• Can the lender close by the time you need them to?

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The Visit

• Have a copy of the pre-purchase inspection the ensure the aircraft is airworthy.

• Test Fly- Does it fly straight? How does it stall? Does everything work? How are the door seals? Does it perform according to model specifications?

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The Deal

• If you’re ready offer, be sure you know what similar aircraft are worth and what like models have been selling for.

• Remember that trade-a-plane prices are asking prices. Make some phone calls and find out, some owners will tell what they paid and others won’t.

• For AOPA members there is an aircraft value calculator to be found at: http://www.aopa.org/members/vref/default.cfm

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Buying from a Distance

• Be sure your interests are well-represented:– Use a buyers agent or someone you trust (must

have limited power of attorney privileges)

– Use an escrow service- an escrow service acts as an independent 3rd party that holds the payment funds until the buyers terms are met (usually transference of the title) such as:

• www.airtitle.com

• www.wbaircraft.com/escrow.htm

• www.aopa.org/info/certified/tne/

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The Deal

• Forms you’ll need: #1 Aircraft Bill of Sale

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The Aircraft Registration Form

• Be sure to include the printed or typed name of the signer in the signature block at the bottom of the form

– Required as of March 23, 2004

• You can operate the aircraft for up to 90 days with this application while you await the permanent.

• There is a $5 fee for this application

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Final Checklist (From AOPA)

• Parties • Identify the parties to the contract — use the complete name and address for

both. • For convenience purposes you may want to attach a specific, short title to each

party for use throughout the contract — for example "BUYER" and "SELLER", "PURCHASER" and "OWNER", etc.

• Purposes • What is the purpose of each party behind the contract.• Aircraft • Identify the subject aircraft completely. This should include make, model, serial

number and FAA registration number. • Do you also wish to list the major components and accessories to the aircraft

radios, engines, props, etc.? If you do, you should identify these items by serial number.

• Date/location • What will be the date of the sale and delivery of the aircraft? • Where will the sale and delivery take place?• Cost • What is the agreed upon selling price? • When and how will payment be made?

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Final Checklist Ctn.

• Deposit • Will you leave a deposit on the aircraft? How much? • What happens if you cannot get financing or if you change your mind? Do you forfeit the

deposit? How will the deposit be returned?• Aircraft condition • What will be the condition of the aircraft at the time of delivery? Airworthy? Current

annual? All ADs complied with? Complete with all documents required by Federal Aviation Regulations?

• What warranties does the seller make as to the condition of the aircraft?• Encumbrances • Are there any encumbrances on the aircraft? If so, how and when will they be satisfied?

(Be sure you get any necessary releases.) • Does the seller know of any other potential or threatened claims against the aircraft? • Does the seller warrant the title?• Default/enforcement • What if either party defaults on the terms of the contract? What are the rights of the other

party? • Do you want to provide for arbitration prior to legal actions? If so, outline the arbitration

procedure. Do you want to make the results of the arbitration binding on both parties? Who will pay for arbitration costs?

• Invalidity of specific contract provisions • Do you want the entire contract to be considered invalid if a court determines that one of

the terms of the contract is invalid?

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Final Checklist Ctn.

• Time of essence • Do you want to make time of the essence in the contract? If not, the parties will likely be

given a "reasonable time" to comply with any of their requirements under the contract.• Governing law • Under which state's laws do you wish to have the contract construed and interpreted?• Modifications • Do you want to require that any change to the contract be in writing? If so, should be

signed by both parties.• Waiver of provisions • Do you want to be able to have the flexibility to decide not to enforce one or more of the

provisions of the contract against the other party without your actions being construed as a complete waiver of the provisions?

• Signatures • Get signatures from the appropriate individuals or corporate officers. If an officer, be sure

to include his or her title with the signature block. Make certain that person has the authority to sign.

• Does your state have any specific formalities for such a contract? Should it be notarized? Should a corporate seal be affixed?

• What is the effective date of the contract?

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Enjoy your New Aircraft!!!