The No-Inspection Sale: the Risks, the Rewards, and Knowing What is Right for You

The No-Inspection Sale: the Risks, the Rewards, and Knowing What is Right for You

October 24, 2018

In markets like today where the supply of many pre-owned aircraft is decreasing and the number of buyers is increasing, a type of transaction where the pre-purchase inspection is waived can become more common. This occurs as the pool of available aircraft diminishes, and buyers sometimes waive a pre-purchase inspections in order to make their proposed offer more attractive to a seller. A transaction where a Pre-Purchase Inspection is waived is frequently called an ‘As is, Where is’ deal. *
In all but the rarest of circumstances or market conditions, a transaction without a Pre-Purchase Inspection results in a lower purchase price. This is one of the key attributes of structures such as this.
From a seller’s perspective, this type of “As is, Where is” deal can seem attractive when the seller does not have the ability, or desire, to incur the inevitable costs of a Pre-Purchase Inspection. Also, a Pre-Purchase Inspection can take weeks, and sometimes months, to complete. If a seller wants a completed sale as quick as possible, there can be a benefit to them to accept a lower price in return for a faster, no inspection sale.
For the seller, the downside of a lower price is quantifiable –at closing the aircraft transfers to the buyer, along with any further maintenance liability. The seller is trading a quicker transaction time with lower maintenance risk for a lower price. The speedy deal may be worth getting out of your obligation even if it means accepting a lower price than could otherwise be achieved.
As a buyer, such a transaction can be risky. By forgoing a PPI, you are assuming all maintenance risk for the aircraft which could be quite costly, and importantly, open ended. However, because you have paid a lower sale price, this may be worth that risk. You and your broker need to research the aircraft to try and understand the risks that might occur. The trade-off is a lower price for higher maintenance risk.
As a buyer, this “As Is, Where Is” no inspection deal takes more knowledge and a higher comfort level with maintenance risks. We see
these sorts of deals being more common with long term aircraft owners and operators – groups who typically have a long experience with a certain aircraft types and can get a strong understanding of the potential maintenance exposure.
There are times when it benefits a buyer to do a transaction with no Pre-Purchase Inspection. First and foremost, it results in a lower price, so the aircraft is bought for less money than if they were to do an inspection. This is particularly useful if the buyer can complete maintenance at a more competitive price, and they can conduct maintenance for a cost less than the price discount to compensate for maintenance risk. Alternatively, the aircraft may have just been through a series of very large inspections and the buyer is satisfied with the previous maintenance input and feels a pre-purchase does not provide a benefit. Additionally, a transaction with no Pre-Purchase Inspection has less costs for a buyer, as they do not have to pay a facility for an inspection.
As the market supply decreases leaving fewer aircraft for buyers to purchase, this no-inspection transaction will start to occur more frequently. There are times when it can be a benefit for both buyer and seller, but particularly for buyers it is vital to be aware of the risks before entering into it.

* Note that this is a commercial statement, ie: the plane is being purchased without an inspection, versus from a more legal contractual language term where it means that following the purchase of the aircraft, the buyer accepts any and all faults with no recourse to the seller.

 

Articles are written from real world experience by Colibri Aircraft’s individuals. If you have any questions or comments about the topic of this blog, please feel free to contact us at enquiries@colibriaircraft.com