Usual And Customary:
Is there such an expectation?
oday there are an amazing either way. Demonstrations are almost consulted to
number of first time buyers always paid by the buying side, but there are determine
coming into our market. These some exceptions if, after the demonstration, appropriate
buyers are, of course, success- the prospect does in fact decide to purchase charges.
ful business people who have the aircraft. In some cases this continuance of Deposit
focused on our industry for all the smart rea- a deal based on the demo may make the sell- terms are fair-
sons: efficiency, safety, creating competitive ing side waive the demo fees. This is espe- ly well-
edges in their respective businesses and cre- cially true with new aircraft manufacturers. defined in our
ating a level of service for their respective Preparation of the Purchase Agreement is industry.
clients that is superior to their competition. another point of negotiation, rather than an Typically, if a
Having said that, these newcomers arrive usual and customary formula. It really just deposit is sent
on our doorstep with expectations of busi- comes down to who remembers to ask for to the title
ness practices that are borne typically from the right to present the first draft. Typically, if company, it is
their own businesses or prior dealings in both sides are using aviation attorneys, the held on a
other transactional type deals, such as real documents can be worked by either side for a refundable
estate or business acquisitions. successful agreement. It is funny how the basis only. It can only be held on a different
In most other types of transactions in documents used today look so much alike, basis upon the delivery to the title company
other industries there are usual and custom- regardless of who presents them. While there of a Purchase Agreement signed by all par-
ary practices and issues, including: who pays are buyer or seller slanted nuances, a few ties. Only then will the disposition of the
the commissions, how much the commis- back and forth volleys will result in agree- deposit be changed to match the agreed-
sions are, and who represents whom. In avia- ments that take on a very balanced upon terms of the transaction. One should
tion, these are only a few of the areas where appearance. insist on using a qualified aircraft escrow
usual and customary come to mind. With To say that there are no usual and custom- company to hold deposits and make filings
aviation deals, however, usual and custom- ary practices in the aviation industry would with the FAA.
ary practices are not the standard and some be inaccurate, yet even those usual and cus- Typically LOIs are non-binding and are
could liken us to the Wild West! Welcome to tomary practices are typically packaged with followed up with a binding Purchase
aviation. mutual consent. For instance, in terms of the Agreement. This can, of course, have excep-
I certainly do not want to insinuate in any location of the pre-buy inspection, the buyer tions if the LOI stipulates a different expecta-
way that we are not an industry with high typically chooses this location with mutual tion. Aircraft are typically not removed from
ethical standards or solid legal footing. I just consent. A seller would not want the plane the market based on a signed LOI. One
mean that the idea of getting things done a taken to a shop that was not an authorized should be very clear as to the binding nature
certain way based on usual and customary service center for that type of plane. The of the LOI so as to not be disappointed by an
practices does not exist here, like in other scope of the inspections is also typically out- outcome that is different from the
business segments. For us, it is all a negotia- lined by the buyer, but is with mutual con- expectation.
tion. Here are a few examples: sent of the seller. It is reasonable for a buyer These business points need to be carefully
Let’s start with the basic issues that deal to review and understand upcoming inspec- considered when formulating a transaction.
with commission. First, who pays the bro- tions and incorporate those in a work scope The collaboration between the aircraft broker
ker’s commission? I am still amazed that for the pre-buy. and the aviation attorney is key in the devel-
very often, I will get a call from a broker rep- Further examples are test and reposition- opment of both the LOI as well as the final
resenting a buyer who asks my selling client ing flights. These flights are typically billed agreement.
to pay his or her commission. This brings up out at a direct out-of-pocket expense, or Use these professionals wisely so as to
another issue that is not usual and customary twice fuel, plus reasonable pilot expenses. In create representation that provides the results
in a purchase contract, and that is what the fact, this standard is actually a mandate from that are expected. Nothing should be taken
commission amount will be. If your broker is the FAA to keep the reimbursement in line for granted or considered covered by usual
accepting a commission from the other side, with operational standards previously set by and customary practices. There are best prac-
at a minimum you should have the commis- the use of the aircraft. If an aircraft is not on a tices followed in our industry, they are just
sion amounts disclosed in the Purchase 135 certificate, any reimbursement in addi- negotiated.
Agreement. tion to the one that is out-of-pocket or twice ❯ Jay Mesinger is the CEO of J.Mesinger Corporate
Additionally, who pays to move an air- fuel is not considered a reimbursement and Jet Sales, Inc. He is on the Associate Member Advisor
craft to a pre-buy or delivery location? Again, could be considered a charter rate, which Council of the NBAA and the Duncan Aviation
there is no right or wrong answer here. It is would have serious consequences to the Customer Advisory Board. He also hosts the Aviation
strictly a business point that tends to go owner. An aviation attorney should be Leadership Roundtable found at www.jetsales.com ■
92 WORLD AIRCRAFT SALES MAGAZINE – April 2007 www.AvBuyer.com Aircraft Index see Page 2