Aircraft transactions: Insightful tips for cross-border deliveries
The importance of a well-drafted purchase agreement and how it impacts successful delivery. Words by Liliane Garcia Rosa.
The hidden contract risks in business
Most contracts, especially in the aviation business, are subject to several factors at different stages of their life cycle. The purchase agreement (PA) is the most important guideline in this process, which is why its legal aspects will provide the “north” with all the contract’s milestones.
A well-written contract needs to anticipate and address the diverse risks that could affect the delivery of the final product, as it depends on several factors outside the production line.
Garcia Rosa is a Brazilian aviation attorney with experience across business aviation aircraft transactions, leasing, contracts and regulatory strategy.
Due to all the variable aspects of the purchase agreements, and especially because most of the biggest OEMs are facing at least a two-year backlog, the contracts do not lock any delivery date, or even month, as the delivery quarter, with subsequent month and date notifications, is what makes sense to forecast the delivery upon the PA’s signature, giving the parties a realistic schedule.
Compliance plays an important role in the process, starting well before the signature, with checkpoints throughout the journey, and the most important one occurs before delivery. The OEMs must comply with rigorous national and international laws, such as ITAR and EAR for dual-use aerospace tech, and OFAC Sanctions related to backlisted entities and embargoed nations.
Successful contract transactions are not defined by the absence of risk, especially in business aviation, but by how effectively that risk is anticipated, managed and communicated throughout the journey from signature to delivery.
Supply chain and scheduling risk
One of the main external factors is certainly the supplier disruptions, as many of them are still recovering from COVID-19, as well as the lack of skilled manpower and shortage of raw materials, such as aluminium and acrylics, or parts like windshields, that are facing major hurdles and extremely long lead times, affecting the assembly line directly. “The shortages highlight some lingering post-pandemic weaknesses in the aerospace supply chain despite noticeable improvements in parts availability this year.”
COVID-19 also brought up the discussion about force major, and the aspects of Excusable and Non-Excusable delay. As legal criteria focus on unforeseeable, beyond the control, and Impossibility, there is still room for discussion and different interpretations, but now, common knowledge classifies “delays tied to ongoing supply chain friction or labor constraints that are and should have been anticipated in contract planning”.
This year has been a very profitable and challenging one. Tariffs played an important role in the aviation industry, bringing issues to export and import processes, redirecting again to the aforementioned supply chain issues, and some of the contracts were not prepared for such costs, leading to reassessments and temporary delivery freezes.
Logistical bottlenecks are another significant risk, as limited paint booth capacity and a global shortage of certified service partners can substantially delay the delivery of new and pre-owned aircraft. Aviation authorities require long, rigorous testing to approve new repairs and finish shops.
“The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.”
Delivery as a process, not an event
An aircraft transaction does not become risky when the parties sign the purchase agreement. The greatest risks often emerge in the months between contract execution and aircraft delivery.
Many buyers focus exclusively on the purchase price, financing options and aircraft specifications, but often pay less attention to delivery milestones and the pathway to title transfer.
Regardless of whether you are acquiring a brand-new aircraft or a pre-owned one, the procedures leading up to your being fully ready to sign the acceptance certificate require the same attention as your options list or even the purchase price.
Normally, the pre-owned market focuses on the famous “as is, where is” condition, but even there, you may structure your contract to meet your needs regarding documentation requirements, customs matters and even regulatory approvals.
In executive aviation, the delivery is not just about the moment when the warranty bill of sale is signed. It is the final step in an extremely complex process that requires contractual discipline, regulatory compliance, operational planning and coordination among multiple members of the process. As a result, successful deliveries often depend not only on the strength of the contractual provisions but also on the quality of communication, which leads us to the next topic, which is also key in the delivery process.
Communication: contract risk vs relationship risk
Even the most carefully drafted contract cannot cover every operational challenge or changing circumstance.
Many unpredictable issues can arise among manufacturers, buyers, financiers, service providers and regulatory authorities if there is no constant alignment along the journey.
Although the articles cannot predict every single scenario, it is expected that a well-written contract will target and meet expectations and responsibilities. The timelines have to be communicated clearly and consistently, and any potential issues can be identified early and managed proactively before they become costly disputes or delays. These potential issues can only be resolved through communication, as the agreement can always be amended to address any unaddressed issues.
Now, bringing my Brazilian legal background to the table, “the contract makes law between the parties” reflects the classical principle of “pacta sunt servanda” (the binding force of contracts), and this institute of Brazilian law only makes sense due to the communication between the parties, and the possibility of reaching an agreement and putting it in the contract.
The delay will not necessarily be received by the buyer in a negative way, damaging the relationship. But it needs to be properly communicated and reasonably explained.
When the expectations are well managed, even more importantly, when the aircraft hits the assembly line, or when the PPI starts, the plans can be adjusted if the information flows correctly. Even when we face an unexpected delay, it feels much better to make informed decisions before issues become critical.
Some of the biggest transaction risks, misunderstandings, assumptions and poorly defined milestones often create disputes involving legal risks and financial risks, but successful aircraft transactions also depend on relationship management, a consequence of good communication.
“The most important thing in communication is hearing what isn’t said.”
Conclusion
Successful aircraft delivery is rarely the result of a contract alone. It is the result of coordinated planning, disciplined communication, proactive risk management and strong relationships among all parties involved.
While contracts establish expectations, successful deliveries depend on how effectively organisations manage the challenges that arise between signing and delivery.
I have been part of the industry for more than two decades, and now I can see much more clearly the constant search for improvement in ensuring legal and technical matters are reflected in the contracts. Artificial intelligence brought a whole new scenario to the contract universe, bringing a new way of drafting and managing.
The National Institute of Standards and Technology (NIST) notes that organisations should improve their ability to manage risks while incorporating trustworthiness considerations into AI systems.
Future articles in this series will explore emerging topics influencing business aviation transactions, including artificial intelligence, evolving compliance expectations and the changing role of contract management in the aerospace industry.
