The Aircraft Letter of Intent (कानून) is a crucial initial step in negotiating commercial terms between aircraft sellers and buyers. Though typically non-binding, a well-crafted LOI sets the stage for exclusive negotiations toward a definitive purchase agreement. It outlines key details, such as purchase price, deposit, deal type (‘hard’ or ‘soft’), inspection scope, and delivery conditions, providing a roadmap for subsequent legal and inspection processes. Continue reading to learn more about a letter of intent and its significance in the buying and selling process.
Essentially, a Letter of Intent (कानून) offers the potential for a meeting of the minds between sellers and buyers on the major commercial terms of an aircraft transaction. Though it is typically non-binding, it is important to get your LOI right – for good reason…
A good Letter of Intent sets an expectation that the parties will negotiate exclusively and in good faith with each other to try to reach the terms of a definitive aircraft purchase agreement, explains Jonathan M. Epstein, a Partner at law firm Holland & Knight.
Ideally, the LOI is a relatively short document of two to three pages, written in plain English and covering a range of details. At the most basic level, it should set the purchase price and require a refundable good faith deposit to be placed with an agreed escrow agent, Epstein says.
इसके अतिरिक्त, the agreement should define whether the transaction will be a ‘hard deal’, meaning that after signing the purchase agreement the buyer can only reject the aircraft for limited reasons (such as the discovery of material damage history), or alternatively a ‘soft deal’ where the buyer can reject the aircraft after the inspection without cause.
The LOI will also identify the general scope of the pre-purchase inspection and test flight, and set forth the condition that the aircraft must be in to accept delivery – for example, with “all systems functioning normally, current on all maintenance with no extensions, no material damage history, आदि,” Epstein illustrates.
On top of these requirements, it may address who will pay for ferry and test flights, as well as any unique issue that may derail the deal if not negotiated up front. It should expressly state that the LOI is non-binding, except for binding confidentiality provisions, and that it expires if it is not executed by a certain date, though providing for some exclusivity until terminated.
Finally, it is important that LOIs contain ‘know your customer’ language, Epstein says, particularly in international deals, requiring the counterparty to identify their beneficial ownership.
Why is it important from the buyer’s perspective to outline such details in the LOI? Epstein says it is a crucial first step. “With experienced brokers or technical consultants driving the process, the parties can quickly determine if they can reach agreement on key terms.
“And once signed, the LOI provides a clear path for the lawyers drafting the purchase agreement and the brokers/consultants scoping the pre-purchase inspection.”
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While the LOI concept may appear relatively straightforward, there is a range of potential pitfalls for buyers. उदाहरण के लिए, Epstein notes, there could be problems if the LOI fails to identify special circumstances that can affect the timing, costs, or risks for a party.
If the aircraft is going to be imported or exported, the LOI should identify who is responsible for the costs of any special inspections for obtaining an export certificate of airworthiness, and the costs of any modification or equipment needed for a change of registry.
“Often parties fail to address special timing issues up front – such as if delivery must happen by end-of-year," उन्होंने आगे कहा. “Similarly, they may fail to build in adequate time for the inspection, when slots for inspections may be limited.”
Stephen Hofer, President of Aerlex Law Group, sees the LOI as one of the most critical documents in an aircraft purchase or sale transaction, second only to the Aircraft Purchase Agreement (APA) itself. That’s because a properly crafted LOI should make it relatively simple to draft the APA. तथापि, Hofer warns against an overly simplified approach.
“I know there are many brokers who advocate for very simple LOIs – the so-called ‘cocktail napkin’ approach," वह कहते हैं. “I have handled many aircraft acquisitions that were successfully closed over the years using the one-page LOI, but I am not a fan – in part because I’ve also seen would-be transactions crash and burn due to an inadequate or incomplete LOI.
“If an LOI is too vague in its drafting or fails to address important issues, it won’t necessarily represent the ‘meeting of the minds’ that is required to create a legally enforceable contract,” he warns.
“Sometimes this is only recognized after attorneys have started negotiating the APA, or perhaps even after the parties have already incurred significant expense to perform a preliminary visual inspection and initial records review, and placed a deposit into escrow.”
“If the negotiations ultimately collapse – and they sometimes do – both sides will have wasted each other’s time to no ultimate benefit.”
Hofer says that if clients and their brokers come to him before making an offer, he can work with them to clearly understand what they want to propose, and the terms and conditions they want in the LOI.
“My LOIs are not written on cocktail napkins, but they’re not as long as War and Peace either. They’re just long enough, and specific enough to say what my client wants to say. A good, smart, experienced broker has nothing to fear and everything to gain from working with a well-written LOI.”
Matt Potts, General Counsel – EMEA for Jetcraft, supports Hofer’s opinion that it’s important to avoid providing insufficient details, which could result in misinterpretation or a buyer and seller committing to something that wasn’t intended.
“If either party knows of specific conditions or other requirements they may have for the successful completion of the transaction, it is imperative that these be included in the LOI," उन्होंने आगे कहा.
“Whether that is a financing condition, specific inspection facility, or required timeframes, this should be incorporated. Regardless of whether it would usually be in an LOI, including known requirements and deadlines will prevent surprises during the aircraft purchase agreement negotiations, and will help ensure time and money isn’t wasted.”
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