A question of form – part two

Alasdair Whyte
By Alasdair Whyte May 16, 2017 13:21

A question of form – part two

Our email on Friday (below) arguing that the business aircraft industry should look at standardised forms received a lot of comment. Both the European Business Aviation Association (EBAA) and the National Aircraft Resale Association (NARA) have said that they are keen to do this.

Only two disagreed. One lawyer argued that the two markets are very different and should be kept that way. A former OEM salesperson agreed:. Business aircraft buyers, in the main, are a mix of need-oriented versus want-oriented individuals. Yacht buyers, in most all cases, are simply want-based,” said the OEM. “I doubt the nature of that form is of meaningful concern to the legitimate yacht prospect or buyer. Spending time considering development of any ‘standardized’ form may well serve only those who want to work on such a form.”

But the vast majority of people believe a standard sale and purchase agreement or letter of intent (LOI) would make things easier.

Here are a selection of (mostly anonymous) comments.

Hamish Harding, founder, Action Aviation

I really do believe it would make a huge difference to have such standard contract paperwork to work from.

I think the huge amount of effort on docs on every sale is significantly slowing down, and even killing, some sales, which reduces margins all round and probably indirectly reduces business jet prices.

If they are freely available to everyone, I believe they would be adopted gradually.

Alina Smidre, solicitor, Keystone Law

“I whole heartedly agree that there is a very strong case for the terms to be standardised and I am a lawyer who makes money on the back of free drafting these!

There are plenty of issues within a purchase agreement which would need to be individually discussed and agreed in each case but to the extent that these can be kept to a short a list as possible it has to be a welcome development.

Lawyers can spend hours if not days discussing legal interpretation of one word which a lay person would pay no attention to and that cannot be good for the client’s interests. Streamlining negotiations and “legalese” questions is surely a way forward, especially now when the market is suffering without lawyers trying to show EACH OTHER how much they know. Ultimately, whatever works best for the client has to benefit the profession. Moreover, there is plenty of other paperwork solicitors have to get involved in on sale and especially on a purchase of the aircraft so it is not exactly like our input will no longer be required.”

Aircraft broker, US
“Our industry should be doing this. There should be a standard LOI that can have an addendum just like there should be a standard purchase agreement that can have some addendum that are particular to the transaction.

I had a highly reputable lawyer do my two page LOI.  Very simple.  I have some lawyers that will not use mine at all, some that change the language.  A few in-house counsels are unfamiliar with the Aircraft LOI process and make unnecessary changes or changes that could change the intent of the LOI.

But the real kicker is one takes out a couple of words, so I look at it and say that might make sense only to have the next lawyer add the same or nearly same words back in.

Every contract has the same language so why not have an industry standard base and then just make the modifications that are specific to the deal?  The lawyers would not really lose that much billing time as the special considerations are always the ones that take time, not the boiler plate.

US Broker
“I couldn’t agree more. I recently had a deal fall apart by two attorneys auguring over moot points in an LOI. The buyer got disgusted before he could even send the deposit. His/our attorney was at fault just as the seller’s attorney. His bill for the fruitless LOI negotiation was $4800. He ended up buying a lesser plane for more money. It is totally out of control.”

Aircraft broker, US
“Bingo”

 


A question of form

There is a decent amount of overlap between yacht and aircraft buyers, so it is surprising how the two markets have evolved quite so differently. Especially when it comes to sales and purchases.

You may be sceptical, but one of the most popular and absorbing panels at a superyacht conference in London last week* was a session with four leading yachts lawyers debating standard yacht sale and purchase agreements.

The debate – and it was a real debate with heated arguments – centred on the strengths and weaknesses of the MYBA form (named after what was the Mediterranean Yacht Brokers Association) and the International Yacht Brokers Association (formerly the Florida Yacht Brokers Association) form. The US lawyers argued that there the IYBA form is far superior and the consensus at the conference was that the MYBA form needs updating.

But everyone in the room was supportive of standard forms. Even if some participants make significant amendments.

Yacht brokers created standard forms 30 years ago to make it easier to sign up buyers at boat shows.

The first time a prospective buyer sees either form they may appear a little daunting but yacht brokers say experienced buyers like the standard approach and are very comfortable about signing them (the IYBA form is just four pages, the MYBA eight). Yacht lawyers also accept that they can be useful for sales and speed up negotiations – especially because lawyers are so familiar with the main issue. There is no standard form for new builds (which can be very complex).

Both forms give buyers the chance to pull out later. In the MYBA form this is after the sea trial, the FYBA form has a hard date. Because the forms were driven by brokers, they also have sections covering commissions.

This is, of course, completely different to the business jet market. Most brokers have their own Letters of Intent. This means that a prospective buyer looking at several aircraft is likely to see many different approaches varying from one or two pages drafted by a broker to 20 pages or more prepared by a lawyer.

A lot of business aviation people will argue that things work fine now. But surely anything that makes buying aircraft easier should be encouraged? There are enough great lawyers out there to create a standard form for aircraft (we can even create a Corporate Jet Investor standard form if there is a need and no one else wants to). We would love to know what you think.

But even if standard forms happen, aircraft brokers should not expect their commissions to match yacht ones.

This originally appeared as the editorial in our Corporate Jet Investor One Minute Week newsletter. To find out more, and sign up for free, please click here.


 

Alasdair Whyte
By Alasdair Whyte May 16, 2017 13:21