Once upon a time, the vast majority of business jets were owned and operated in the U.S., but that’s changing. Residents of other countries represent an ever-growing segment of the market, and the business of buying and selling corporate jets is increasingly international. In fact, a majority of factory-new aircraft these days are delivered outside the U.S.
As a result, for American buyers, the purchase of an aircraft on a foreign registry no longer constitutes an unusual event; on the contrary, it has become almost commonplace. Nevertheless, it’s often more expensive, and certainly more work, to import an aircraft from overseas than it is to buy one that is U.S.-based and -registered, so the underlying business deal has to be good enough to make it worthwhile for both buyer and seller.
If you’re an American who is contemplating the purchase of a foreign-registered aircraft, keep in mind that the country of registration is in many ways less important than where the airplane is based, maintained and used. Suppose you’re considering acquisition of a jet registered in notorious Corruptionland. If the aircraft was based and maintained in Corruptionland, that country’s reputation may be a valid concern. On the other hand, if it was based in Switzerland, maintained by a world-class facility, spent most of its time flying back and forth to the U.S. and has logbooks in English instead of Corruptionese, the Corruptionland registration may be of little consequence.
In sum, the level of due diligence required when purchasing a foreign aircraft is much greater. First, you should employ local counsel in the country of registration and/or where the aircraft is based to help uncover any liens and to make sure you obtain clear title. In Italy, for example, regulations require publication of advance notice of the sale to give lienholders a chance to collect. Local counsel may also be crucial in arranging the mechanics of closing. (For instance, such counsel may need to act as the closing agent.)
Second, you should determine where the aircraft regularly traveled. If it made frequent trips to company facilities in India and Sweden, for example, you may want to order lien searches in those countries to avoid encountering undischarged liens the next time you fly there on the aircraft. Better yet, consider buying title insurance that covers all relevant jurisdictions.
Third, as with any aircraft, arrange for a thorough prepurchase evaluation–if possible, at a factory-authorized service center in the U.S. If necessary, have foreign-language maintenance logs and records translated into English.
Probably the most important player in importing an airplane into the U.S. is the designated airworthiness representative, or DAR. The DAR is a maintenance technician authorized by the FAA to provide aircraft with an airworthiness certificate from that agency. DARs are located all over the world. When purchasing the imported airplane, you register it in the U.S. by filing paperwork with the U.S. aircraft registry in Oklahoma. For the registration to be valid, you must satisfy FAA requirements, such as its tests for being a U.S. citizen.
However, to fly the aircraft once it’s on U.S. registry you need something more: an airworthiness certificate. That’s where the DAR comes in. As part of the prepurchase evaluation, you should have a DAR review the aircraft to determine whether it satisfies requirements for an airworthiness certificate. The DAR may require an annual inspection to be accomplished as part of the process. You should also arrange for the DAR to be standing by to issue the certificate following closing.
Many buyers assume that obtaining an export certificate of airworthiness from the country of registration accomplishes the same thing. However, in my experience, DARs often regard the export certificate as an expensive irrelevancy; they still want to conduct their own review of the aircraft and its records to determine compliance with U.S. requirements. Check with your DAR about whether an export certificate is necessary or helpful and whether the exporting country will require any other approvals or paperwork. In any event, the aircraft purchase agreement should be clear about whether buyer or seller is responsible for correcting discrepancies in order to obtain an airworthiness certificate.
Before the DAR actually signs the airworthiness certificate, the aircraft must be U.S.-registered, with foreign markings replaced by U.S. markings and transponders re-strapped to reflect U.S. registration. Essentially, the aircraft should be in condition where it could take off five minutes after receiving the airworthiness certificate. This, in turn, requires that the airplane be de-registered from the foreign registry–at which point it becomes an immobile “aircraft without a country” until it receives a U.S. registration and airworthiness certificate.
For this reason, the seller is extremely unlikely to allow the aircraft to be de-registered until the purchase price and all required paperwork are placed in escrow along with irrevocable instructions to move forward with a closing as soon as de-registration is confirmed. The situation is even more complex where an aircraft lienholder insists on being paid off before the aircraft is de-registered.
International transactions are subject to their own taxes and fees. For example, you can purchase an aircraft (and obtain U.S. registration and an airworthiness certificate) while it’s in the European Union without incurring the dreaded VAT (value-added tax), about 20 percent of the purchase price. But to avoid the tax, you generally have to export the aircraft promptly from the EU. When the jet comes back to the U.S., you’ll have to clear customs to import the aircraft into the U.S. None of this is either terribly complicated or expensive–unless you don’t do it right.
The location of the aircraft at closing highlights an especially cumbersome feature of international aircraft transactions: the demonstration flight. Any business jet buyer should fly in an aircraft before committing to buy it.
Suppose the aircraft you’re acquiring is based in Milan and you’re in Dallas. You and the seller might get lucky–maybe you have a trip to Italy or the aircraft has a trip to Texas–but, otherwise, the mountain has to come to Mohammad or vice versa. Few buyers are enthusiastic about spending the time to travel across the globe to fly in an aircraft, and few sellers are enthusiastic about sending their aircraft across the globe for a demo, even if the buyer agrees to pay some or all of the cost of doing so.
It may help to coordinate the demo flight with positioning the aircraft to the U.S. for the prepurchase inspection, but one way or another, long and expensive flights will be involved.
Buying an aircraft for import into the U.S. can be complex, expensive and time-consuming, but with the help of professionals, it may result in acquiring the right aircraft.
Attorney Jeff Wieand is a senior vice president with Boston JetSearch and a member of NBAA’s Tax Committee.