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VIEWPOINT: You just can’t wing it when it comes to landing an aircraft deal 22 October 2013

From tracking missing parts to replacing costly components, Chris Buller, partner in the MBA division of the ES Group, says there’s plenty to consider when handling aviation insolvencies.

After completing many aviation instructions – covering everything from operating regional airlines to aircraft dealerships, flying schools and repair centres to police and air ambulance operators – we’ve learned that it’s crucial to get control of the assets.
When dealing with aircraft, it is essential to find all the log books and technical records and ensure that they are stored securely – because if they are lost, the value of the asset is considerably reduced. An engineer then needs to provide a report on each aircraft, setting out the key details relating to the airframe time, number of cycles, engine and propeller times. If it is a jet, a report is needed on the hot section inspection time and if they are on an maintenance service plan scheme, together with a schedule of the avionic fit and if possible a component time schedule.

It is also vital to establish details of outstanding landing charges that may be due as these debts remain against an aircraft and do not die with the collapse of the company.
Sadly, it is often the case that we find an aircraft is in bits or has been cannibalised to provide parts to keep other aircraft operational while their parts are away for overhaul. Once the company has entered into an insolvency process it is not possible to reassemble the dismantled aircraft due to the insolvency practitioner’s insurance issues.

As the aircraft are often fairly old, with time-expired parts, they are sold on an as-is basis. However, we would consider completing repairs where we are dealing with a higher value aircraft and added value would result. For example, we recently arranged for an 18-month-old Diamond DA 42 to have a replacement gearbox installed as this would enhance the value of what was a very young aircraft in terms of age and hours flown.
It is essential to treat each aircraft on its individual merits. On another occasion we were appointed to sell a fleet of Embraer Bandeirantes and discovered one of the aircraft’s undercarriages was on loan. The original was away for overhaul and would not be returned due to the sums owed to the company. After an extensive search, we realised that the cost of a zero-timed undercarriage was nearly as much as the value of the entire aircraft as the engines were nearly time-expired. In that case it was more cost effective to sell the aircraft for parting out.
It is not just large components of an aircraft that are costly: small avionics, testing units and specialist tools can also be expensive and fetch good money on the local airfield black market.

For that reason it is important to ensure that store rooms are secured to try to minimise petty theft.
The sale of aircraft is traditionally a private treaty affair, as buyers usually want to undertake detailed inspections and engineering checks, which take time. Nearly all aircraft we sell go to end users, as the equivalent of second hand car dealers does not exist in the aircraft world – although some parties give a good impression of being an Arthur Daley with wings.

Auctions fail to take off Although I’ve attended a number of traditional aircraft auctions, I have yet to see one where the majority of aircraft are sold. As a sales medium for an insolvency practitioner, this is not an attractive proposition.

However, we were recently instructed on a flying school in the Home Counties. We advised that the sale would be best undertaken by private treaty, but due to rent issues a short time frame made this impossible. So, with an element of trepidation, we held an online auction and advised the clients that the realisations achieved may reflect the risk some parties would be taking as they could only undertake a certain amount of due diligence. To overcome this issue, we provided as much information as possible and included all the maintenance plant and ground equipment with the aircraft in the online sale.

The lower-value aircraft, comprising nearly time-expired Piper Tomahawks, realised good values, while the larger and more expensive Piper Seminole and Aztecs realised lower sums, perhaps reflecting the greater financial risk the purchasers were making.
Sales of the ground and maintenance equipment always realise well in online auctions, with end users often getting carried away in the bidding frenzy.

For further information:

Chris Buller can be reached at chris.buller@es-group.com or 020 7633 2565.

 

 

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