With aircraft trading having surged post-pandemic, this Aircraft Trading 101 guide distils the essentials of aircraft acquisitions and disposals looking at title transfers, aircraft positioning, airline negotiations, due diligence, novations and timed closings; even a “simple” sale can quickly become a strategic exercise.

1. Two Main Sale Structures: Metal vs BI Transfers

The majority of aircraft trades are documented by way of a metal sale — a full transfer of legal and beneficial title in the aircraft, comprised of: 

• a sale and purchase agreement;
• a bill of sale and accompanying acceptance certificate; 
• a novation agreement with the operating lessee with an effective time notice; and 
• the termination and replacement of ancillary leasing documents.  

• a beneficial interest sale agreement;
• an assignment of beneficial interest; and
• a lessee notice and acknowledgement and/or lease amendment. 

Why are BI Transfers popular?

Trading parties want speed and fewer documents; because the legal owner (the trustee) does not change:

• no tripartite novation is required;
• there is no need to recreate quite so many ancillary lease documents; 
• the workload for the airline is significantly lighter; and
• certain financing structures, particularly ABS transactions, have come to use trusts as a prime vehicle for purchases.  

Due diligence is usually conducted from a legal, technical and tax perspective by the buyer with some parties engaging an insurance advisor to review the insurance-related provisions in the underlying lease documents and any relevant insurance certificates. The due diligence process can be quite a timely and costly exercise, but several strategies can help streamline it: 

• Sellers highlighting known issues (physical or documentary) early in the marketing materials or LOI.
• Disclosure in clean, organised form, with lease documents, ancillaries and bills of sale grouped and chronologically listed.
• Identifying sisterships early so buyers don’t waste time repeating identical reviews.
• If third-party technical teams are involved, using mutually agreed advisors, and all parties using virtual data rooms to collate, track and resolve due diligence findings efficiently.  

A common tension is that sellers want sale agreements signed quickly, whereas buyers prefer to wait until their diligence is complete. Whilst the sale agreement can specify timelines and outcomes for unsatisfactory findings, it is typically less complicated for the parties to only execute the sale agreement once the due diligence process is complete. If unresolved issues remain, these can be dealt with by:

• addressing them as express specific condition precedent items to be satisfied prior to delivery of the relevant aircraft; or
• agreeing and documenting amendments in the lessee-facing documents (i.e. novation or lease amendment).

3. Documentation Strategy and Transaction Timing

On single-aircraft deals, metal or BI Transfers are usually documented individually while multi-aircraft trades may require:

• separate metal and BI sale agreements, potentially linked by way of (i) a CP to ensure one can’t take place without the other and/or (ii) a cross-default provision; or
• a combined sale agreement for all aircraft covering both types of transfer, if necessary.  

If either party is an special purpose company or owner trust, the relevant counterparty may request a guarantee, letter of comfort or other support from an entity of substance related to such SPC/owner trust to stand behind such party’s obligations under the sale documentation.  

• airlines can be engaged early;
• buyers focus their due diligence and address any findings in the lessee-facing documents as soon as possible; and
• the timeline to closing potentially shortens. 

Forms of novation

Parties typically base the initial drafts on either:

• a precedent novation entered into by the relevant seller and lessee — this should accelerate the lessee’s review, but buyers should ensure it is not entirely off-market before agreeing to use this as a base; or
• the AWG standard form — a solid baseline, but typically requiring buyer’s counsel to update it to ensure that any open due diligence items related to the lease documents and/or lessee are addressed (usually by way of representations, factual confirmations or amendments to the underlying lease documents).  

In BI Transfers, no standard form exists; a simple lessee notice and acknowledgement or lease amendment is normally sufficient.  

Lessee engagement is typically one of the biggest pacing factors, with transfers sitting low on most airlines’ priority lists. Although leases usually require the lessee to cooperate, this is often subject to reasonableness — a standard few lessors would want to enforce.

Strategies to keep airlines cooperative include:

• using existing leverage – e.g., if a lessee has a request in with a lessor for a lease extension for a sistership;
• favouring a BI Transfer – sometimes resulting in reduced volume of paperwork and requirement for lessee resources;
• notification of upcoming sales as soon as possible – particularly where the aircraft will need to be positioned in a certain jurisdiction at closing;
• considering the counterparties’ relationships – being aware of airlines’ preferred lessor counterparties when selecting between similar bids;
• avoiding buyer asks at LOI stage that the seller already knows the airline will reject (based on previous trades); and/or
• making any transfer fee conditional on reasonable cooperation within agreed timelines.

As part of the novations and lease amendments, buyers should ensure the any recent legal developments are addressed including:

• the removal or replacement of LIBOR references, which may be relevant in the context of floating rate rent, default interest or interest on deposits;
• the inclusion of a “No Russia/No Belarus” clause; and
• updates to unilateral jurisdiction clauses.

Lessees may resist such changes based on the “no greater obligations” condition that usually applies on lessor transfers, but lessors must still ensure that leases remain enforceable and compliant with applicable law.  

Given that aircraft are mobile assets, and it’s not uncommon for titled engines to be off-wing, and parties are often sensitive to delivery location requirements, parties may try to avoid live closings, where funds move only once all CPs are met particularly if there are very tight closing windows. As a result, parties often turn to:

• escrow arrangements – an independent escrow agent holds the purchase price on account from the buyer ahead of closing, which occurs upon delivery and release of an instruction to the escrow agent to release such funds to the seller; or
• refund letters – the buyer pre-positions the purchase price with the seller entity ahead of closing, subject to agreed protections requiring prompt refund if the sale does not complete.

Both mechanisms require clear allocation of any fees (for the escrow agent), refund timing and authority to issue payment or release instructions — especially where financing sources are involved. 

7. Pulling It Together: Why Good LOIs Matter

Well-run aircraft trades can begin at the LOI phase, with parties agreeing to key variables (structure, CPs, airline requirements, diligence scope, trust arrangements, closing mechanics), with counsel input as necessary, helping deals progress more smoothly, cheaply and quickly.