Importing Aircraft, Part 6: Contractual Quirks of Foreign Transactions

Thinking of buying an aircraft outside the USA? Foreign transactions might seem similar to domestic deals, but cross-border deals bring their own “contractual quirks.”

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As we’ve covered in earlier installments of this six-part series, buyers of foreign aircraft face added layers of complexity.

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If you miss a key detail, you could risk stalling the deal just as you’re ready to close. Let’s take a closer look at some of the biggest contractual needs to cover the quirks of overseas transactions.

Delivery Conditions

Every transaction should clearly state what the buyer will receive for the purchase price. These “delivery conditions” typically cover items such as maintenance status, logbooks, damage history, airworthiness directives and service bulletins.

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For international transactions, be sure to specify the language of the logbooks. If they aren’t in English, require translations to confirm completion of all required maintenance.

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You’ll also want to include a clause on the Export Certificate of Airworthiness and identify who pays for it. State whether the certificate will be issued with or without any exceptions, including installed equipment or modifications allowed under the current aircraft registry but not permitted by the future registry.

Tariffs/Customs

As you know, tariffs are a hot topic (check out my first article about them). The purchase agreement should clearly state who is responsible for any customs or tariff costs, which can be hefty.

A good contract will also account for potential changes. When this series on international transactions started, tariffs on EU-manufactured planes were on the horizon. They became effective shortly thereafter, casting confusion on the market.

As of this writing, these tariffs on EU-manufactured aircraft are now back to zero. But what if you go under contract when there are no tariffs, and the rules change halfway through the transaction? Without a good contract to account for potential changes, the parties could be stuck in a transaction that is economically unfeasible.

Choice of Law / Forum Selection

Every purchase agreement, whether domestic or international, should include a “choice of law and forum selection clause. This selection determines what law will apply to the contract, and where the fight will play out in the event of a legal dispute.

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While laws and convenience vary from state to state, the differences are amplified between countries.

Before agreeing to a foreign law, it’s important to know the differences in how the contract will be interpreted and enforced (or not enforced). This requires hiring an attorney who’s well-versed in the local law. It can be daunting to convince a seller from Country A to accept laws from Country B to govern their multimillion-dollar asset sale.

Once you negotiate which law will govern the transaction, where will it be enforced? The legal system of each country will vary wildly, both in quality and efficiency. One potential neutral and efficient option is the Hague Court of Arbitration in Aviation. This organization has aviation experts to help hear and resolve disputes. It has expedited processes to determine the outcomes of cases, which could save years in the court system of any particular country.

“Know Your Customer” Rules

Most aircraft sellers and buyers value privacy. Foreign owners, especially, often protect their identities by forming companies in jurisdictions like the Cayman Islands, Isle of Man and San Marino.

If your contract doesn’t require the seller to provide “Know Your Customer” (KYC) details to satisfy your bank and the escrow agent, the deal could stall.

Without a KYC clause, banks may refuse to fund the purchase and/or escrow agents may decline to handle the transaction. In the U.S., banks and other institutions are enforcing tighter KYC rules, with even greater scrutiny applied to foreign transactions.

Closing Procedures

Here in the U.S., closing procedures are fairly standardized. But you will typically need to modify them for foreign transactions.

Be sure to account for the lag in timing with funds flowing from one country to another, and who bears the risk of loss in the interim. Also, account for completing the deregistration process from the foreign registry so the plane becomes eligible for registration in the U.S.

Navigating Contractual Quirks in Foreign Transactions 

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Foreign transactions and imports can provide great opportunities and value, since many buyers feel too intimidated to take on the challenge.

That said, every transaction should include an experienced team that includes an aircraft broker, aviation attorney and tax professional. Having a solid team on your side is imperative, especially those who know how to navigate the unique quirks of an international deal.

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Part 1: Navigating Aircraft Import & Tariff Customs

Part 2: Importing Aircraft: Aircraft Registration and Deregistration

Part 3: Airworthiness: How to Get Your Imported Aircraft Ready to Fly

Part 4: How to Balance Taxes Between Multiple Jurisdictions

Part 5: Logistics: Where to Inspect the Plane and Complete Closing?

Part 6: Contractual Quirks of Foreign Transactions

This article is not intended, nor should it be construed or relied upon, as legal advice. The comments, recommendations, and analysis expressed in this article are those of the individual author, John Farrish, are purely informational. This article does not create an attorney-client relationship between you and the author or his law firm. If specific legal information is needed, each person should retain and consult an attorney with knowledge of the subject matter.

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