We speak to Jason Zilberbrand Accredited Senior Aircraft Appraiser, who discusses the issues that can arise when purchasing an aircraft and what attorneys should be aware of when advising their clients on such matters.
COVID-19 has seen a rise of people using private jets – what legal cases have the potential of occurring here?
There are numerous legal issues with aircraft purchases, maintenance, and management of the asset. Common litigation for pre-owned aircraft involves a breach of contract, 3rd party damage claims, and maintenance disputes. For new aircraft, litigation can involve liquidated damage clauses, favoured nations clauses, disputes over delivery terms, delays and manufacturing issues, and aircraft damage.
Do these potential issues change when purchasing a used jet? What precautions should be taken here to avoid disputes?
Both new and pre-owned aircraft have high-risk profiles as there is no consumer protection available when purchasing an aircraft. All transactions are "As-Is, Where-Is", and a buyer must hire experts to protect their best interests. I always recommend that a buyer has an attorney review all contracts and purchase agreements. If a used plane is purchased, the broker's agreement should be reviewed carefully before any work is started.
To avoid disputes, the buyer should require the broker to act in the buyers' best interest and agree not to conduct a back-to-back transaction. A back-to-back transaction is when the broker takes a position in the aircraft and agrees to buy the plane from the rightful seller to the prospective buyer. The broker is in the middle and uses the buyer’s funds to purchase. While there is nothing wrong with a back-to-back, there is a question of ethics as the broker becomes an opportunist seller and scrapes the profit from the transaction, which would never have occurred if the parties were working direct. The back-to-back transaction results in more lawsuits, fraud claims and can often be avoided if the buyer adheres to standard business practices and has legal guidance.
Conduct a pre-buy ALWAYS, and do not agree to do business with a broker that won’t agree in writing to proper business terms which protects your best interest.
What can be done to avoid any escalation to litigation?
I always suggest mediation and settlement if possible, but personalities will often override suggestions about the settlement at the end of the day.
What contractual issues should people be aware of before buying a private jet?
The seller and the broker are not your fiduciary. Conduct a pre-buy ALWAYS, and do not agree to do business with a broker that won’t agree in writing to proper business terms which protects your best interest.
How do you undergo an appropriate valuation? How can this impact legal disputes?
A proper appraisal starts with hiring the right appraiser. There are very few full-time appraisers with a speciality in aircraft. Even fewer are Accredited Senior Appraisers, as this requires a minimum of 10 years’ experience. Most appraisers have a speciality, whether that be commercial aircraft or business aircraft, and indeed not many have the expertise in multiple aircraft types. Once you have identified that the appraiser is qualified, the process is relatively straight forward. The scope of work is determined, and most appraisers will request a complete data package on the aircraft. Appraisals are either conducted on-site or remotely via desktop; the result should be the same. The appraiser either collects the pertinent data or has it sent to them for review. They then complete the necessary research to finalise the report. VREF has a guaranteed two-day completion time, which is the fastest in the industry.
In terms of legal disputes, most issues I have seen are with poorly drafted appraisal reports, a lack of accreditation and training, or simply not knowing the asset's value. I conduct a fair amount of appraisal reviews, and it is shocking how many reports are littered with errors and do not contain the proper USPAP compliance.
Are there any misconceptions attorneys or those outside of the expert field have about aviation ownership and the issues which can arise?
The only misconception that comes to mind is that all ownership is the same, which is not the case. Aviation has changed in several ways over the past decade. Today, there are many alternatives to outright ownership that create several potential lawsuits and attorneys need to recognise this to better determine a course of action. Some fractional ownership contracts and membership contracts contain restrictive language that creates substantial obstacles within determining proper exit strategies.
Jason Zilberbrand, ASA, CAA, ISA AM, AOA AM, MRAeS
President
VREF Aircraft Value Reference, Appraisal & Litigation Services
M. +1.312.961.0934
O. 844.303.VREF ext 700
E. Jason@Vref.com
Jason Zilberbrand is the President of VREF Aircraft Value Reference & Appraisal Services. He is an Accredited Senior Aircraft Appraiser with the American Society of Appraisers (ASA), and an Accredited Member of the Appraisers National Association (ANA), and he is also an Accredited Member of the International Society of Appraisers (ISA). He is an Expert Witness, broker, inventorying dealer, acquisition agent, aircraft owner, aircraft operator, contract negotiator, consultant, teacher, conference speaker, and author. Jason spent over 15 years as an inventory aircraft dealer with a $300-million-dollar credit facility and over $4.5 billion in aircraft transactions.
After spending 26 years in General Aviation working directly with aircraft owners/operators and the leading manufacturers and financial institutions, and owning and operating his aircraft, Jason knows the international aviation marketplace. He is considered an expert in aircraft valuations, appraisals, and aircraft transactions, and his background is diverse with knowledge in technology and aviation.
Areas of aviation expertise include:
- Business aviation transactions
- Breach of contract disputes
- Corporate breach of contract
- Back-to-back disputes
- Agent agreements
- Aircraft valuation
- Aircraft diminution of value, post-accident damage, insurance claims
- Aircraft Depreciation, historical depreciation
- Engine maintenance programs, Airframe Maintenance Programs, Power by the hour programs contracts, and standards
- Statistical analysis of aircraft values
- Aircraft resale, aircraft import/export
Jason graduated in the top 1% of his class with National Honors from Roosevelt University in Chicago and a lifetime member of The Franklin Honor Society and a member of the Royal Aeronautical Society. Jason is an avid Triathlete, marathon runner, swimmer, and cyclist and enjoys spending time with his family. Jason is currently the Director of Public Relations for ASA Chicago Chapter 33 and sits on the board of The Global Licensed Aircraft Dealer Association (GLADA).
VREF Aircraft Value Reference, Appraisal & Litigation Consulting Services was founded in 1994 and is headquartered in Des Moines, Iowa, with offices in Chicago IL, Rockford IL, Los Angeles CA, Boise ID, Daytona Beach FL, Austria, Switzerland, Australia, and China.
VREF provides aviation valuations, appraisals, and litigation consulting services to a worldwide client base of aviation professionals including, law firms, banks, financial institutions, leasing companies, manufacturers, aircraft owners, aircraft operators, and suppliers. VREF Aircraft Value Reference, Appraisal & Litigation Consulting Services plays a crucial role in advising decision-makers within the aviation industry. VREF is the Official Valuation Guide and Appraisal company for the AOPA (Aircraft Owners Pilot Association).
