John Farrish

Many aircraft sale listings note that an aircraft is “on programs” (e.g., maintenance programs). These programs typically include “power by the hour” arrangements for engines or APUs, and, in some cases, airframe maintenance.

The gist is that an aircraft owner pays the original equipment manufacturer (OEM) or third-party program provider a specified rate per hour of use, plus a monthly fee. In return, the program provider pays for certain specified maintenance costs for the engines, APU, or airframe

Similar to other industries, aircraft OEMs generate a significant portion of their revenue from ongoing maintenance. Naturally, program providers aim to profit from these maintenance programs as well. So what benefits do they offer aircraft owners?

Benefits of Aircraft Maintenance Programs

At least three key benefits stand out. For starters, an aircraft owner can spread out maintenance costs. These are typically paid by the hour and month instead of in large amounts when the actual maintenance is performed.

Second, a maintenance program will often increase an aircraft’s resale value. When selling a plane nearing overhaul, one on a maintenance program will typically cost significantly more than one without. This is because the next expensive maintenance event has largely been prepaid.

Additionally, aircraft that are on maintenance programs are perceived to be better maintained. With the program covering the maintenance costs, there’s little incentive for owners to skimp or cut corners on upkeep.

Third, a program will lower your overall maintenance costs. This is because program providers have enormous buying power, including the third-party providers, that source their own parts. In turn, this translates to savings for the owner–even taking into account the actuaries’ cut in the program providers’ offices.

Purchase Agreement Considerations

Whether buying or selling an aircraft, it’s imperative that your aircraft purchase agreement addresses the various aspects of maintenance programs. First, it should cover whether the plane is delivered with the programs. Since many programs allow deferred hours or balloon payments due at engine overhaul, address any such “deferrals.”

Conversely, the purchase agreement should cover whether a current owner can “cash out” any positive balances in the programs (to the extent allowed). Finally, the purchase agreement should cover whether a purchaser must complete the transfer of the programs.

These variables can sway the value of the aircraft by hundreds of thousands of dollars or more, and prevent costly fights later on about the status of program enrollments.

When buying an aircraft “on programs,” most purchasers elect to continue the enrollments. It makes good business sense. Why stop paying into an engine program when the previous owner has already contributed a substantial amount toward the next major maintenance event?

That said, the decision to buy a plane enrolled on programs should be made in conjunction with advice from your aircraft broker. They’ll explain the intricacies of each manufacturer’s program-specific benefits. With your aircraft broker’s guidance, you can determine if a plane on programs is right for you. After all, it’s certainly cheaper in the short term to buy a plane without programs if you plan on discontinuing them anyway.

How to Transfer Maintenance Programs

The typical transfer process involves the seller providing proof of enrollment and the current invoicing status. (This is because the program provider usually only communicates with the current owner). Invoicing from program providers often lags because it relies on the owner reporting their flown hours. Any shortfall can be reconciled at closing, as calculating amounts owed is straightforward using the last reported hours and the hours on the aircraft or engines at closing. Program providers supply the paperwork, whether it’s an assignment or a new enrollment contract.

Some new owners prefer to avoid regularly scheduled payments, choosing instead to invest in their businesses until the cash is needed when aircraft maintenance expenses arise. However, an often-overlooked risk of discontinuing a previous owner’s maintenance programs lies in potential early termination fees or liquidated damages provisions.

Certain maintenance programs are “term” contracts that heavily penalize owners for discontinuing them. One manufacturer’s airframe maintenance program is particularly aggressive in enforcing these penalties. Another OEM’s program imposes penalties if the provider has paid more for maintenance than the owner contributed, and the contract is terminated before the scheduled term ends. In such cases, owners may receive surprise invoices for tens of thousands of dollars–or more–within months of closing the sale.

If these scenarios aren’t addressed in the aircraft purchase agreement, disputes over responsibility for termination fees or liquidated damages can arise, post-sale. 

While maintenance programs can simplify upkeep and stabilize costs for aircraft owners, failing to address them in the purchase agreement leaves both parties vulnerable to costly conflicts down the road.

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How can you buy an aircraft with only a week or two left, no time for a full inspection, and booked inspection facilities?

In football terms, there are just two minutes left on the clock and no timeouts.

From experience, these last two weeks of the year are the “Super Bowl” for aircraft transactions—when buyers race against time to close deals before the year ends.

Buying an aircraft under tight year-end deadlines isn’t easy. It requires quick decisions and creative strategies. While an aircraft transaction typically takes 4-8 weeks when there’s no time crunch, many year-end buyers needing bonus depreciation can’t afford that timeline.

How to Buy an Aircraft Quickly: Two Plays

There are two potential plays—both somewhat risky—if you want to make a purchase before year-end while protecting the buyer.

The best option is for your aircraft broker to find a plane with recently completed major maintenance (or nearing completion). While standard maintenance doesn’t cover all inspection tasks, most should be done.

Additional steps may include a logbook review for completeness and damage history, plus borescopes of engines and the APU. These checks aim to ensure no “significant findings” (e.g., items that would disqualify the aircraft from consideration).

The challenge: Most planes like this are already under contract.

The second play is to find a well-maintained plane and perform a limited inspection for “significant findings.” Both parties can then close the deal, leaving part of the seller’s proceeds in escrow (a “holdback”). This contemplates a full pre-purchase inspection in January, with the holdback paying for the “squawks” discovered and with remaining funds returned to a seller upon completion.

The risk: The holdback might fall short of repair costs, or the full inspection might reveal serious issues. Success depends on a well-crafted aircraft purchase agreement outlining both parties’ post-closing obligations.

While the ideal approach allows plenty of time for thoughtful due diligence, creativity is possible when the clock is running out. These risky plays aren’t for rookies or the faint of heart. Success demands a strong acquisition team, including a skilled broker and aviation attorney.

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Many buyers are so excited to start flying their new dream machine that they’ll often fly right past some key aspects of the critical aircraft inspection process. 

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Two key requirements exist during a pre-buy process.

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The first key is determining who will perform the pre-buy inspection. Sellers typically prefer their local shop, often the same team who maintained the plane during their ownership. 

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The challenge? What are the chances that the inspection facility will genuinely critique its own work? The more squawks they find, the more the seller might blame them for past oversights. 

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Instead, it’s wise to have a fresh set of eyes inspect the aircraft. Ideally, this would be the facility the buyer plans to use for future maintenance. 

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This gives the new facility an opportunity to familiarize itself with the plane, review logs and honestly assess the aircraft’s condition. They’ll also be motivated to perform a thorough inspection, avoiding blame down the road if something fails soon after. They’ll also have an incentive to find issues they can fix – and charge for.

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Secondly, often overlooked, the purchase agreement should specify the “delivery condition,” outlining the standard for repairs. To avoid disputes and keep things positive, it’s best to agree on “delivery conditions” in advance, even if it requires extra negotiation. Consider these scenarios:

• Should all systems be functional, or just the flight-related systems? 
• What if the air conditioning or lavatory isn’t working? 
• Should the aircraft be current with a Part 91 annual inspection or follow all manufacturer-recommended hourly and calendar inspections?
• What if the buyer and seller disagree on necessary repairs? 

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Why shouldn’t a buyer let the fox guard the hen house? Because they need certainty about the plane’s true condition and agreed-upon results. Hiring an independent aircraft inspection facility provides this assurance, so they can confidently fly their dream machine upon closing.

One of the greatest benefits of owning an aircraft is avoiding flying on commercial airlines. Yet, according to the FAA, many owners inadvertently (and illegally!) run their own commercial flight operations. Most owners are likely aware of the general rule against accepting payment or reimbursement for Part 91 flights. An owner can fly any friends or colleagues, but generally may not accept compensation for doing so. Like good law-abiding citizens, these owners only fly their aircraft for themselves, and never charge anyone else when they fly friends or colleagues.

However, most owners often reflexively register their aircraft in a Limited Liability Company (LLC), and run all costs and operating expenses through this LLC. Principals then make capital contributions to pay the bills. But without an operational agreement in place, such as a dry lease from the LLC to the principal or their business, the FAA would consider the LLC an illegal “flight department company” providing illegal charter. The holding company LLC’s sole purpose would be to provide transportation by air to the principal, and the principal capital contributions are “compensation” to the LLC for the flights. In other words, the principal is paying the LLC for flights—something that cannot be done unless the LLC has a charter certificate. This puts the LLC, principal and pilots at risk for FAA fines and action against the pilot’s license.

Potentially worse, since insurance policies typically require compliance with all FAA regulations, it could also provide an insurer a reason to deny coverage in the event of a loss.

The good news? You can absolutely avoid illegal charter. With a bit of planning and guidance from an aviation attorney, you can establish an FAA-compliant ownership and operational structure. Even better, this often aligns with effective state tax planning, helping you stay out of trouble while potentially lowering your tax bill.

About the Author

An attorney and owner of InFlight Law, John Farrish guides clients on the legal side of aircraft sales and acquisitions from start to finish. At InFlight Law, he represents international and publicly traded companies to family businesses, entrepreneurs and ultra-high-net-worth individuals, including owner-pilots. He is experienced in new and pre-flown aircraft transactions, ranging from large cabin to turboprops and has coordinated transactions in every continent—except Antarctica.