Pre-Purchase Inspections: Who Pays & How Much?

Pre-buy or pre-purchase inspections (PPIs) are critical to the aircraft acquisition process, ensuring the aircraft meets the required technical and airworthiness standards. It can be a complex area, with varying financial implications. But what are some of the common issues that arise from the process that buyers and sellers should be aware of?

The need for a PPI is clear. It isn’t possible to obtain a full understanding of the asset from a due diligence perspective based on technical specifications or remote records and photos alone, says Rob Watts, Director of Consulting at ACC Aviation.

“Performing a thorough inspection of the aircraft/engine and its records will ensure that the buyer knows what they’re buying, [the aircraft’s] technical condition and airworthiness status, and make the buyer aware of any potential maintenance expenditure liabilities they may be acquiring,” he says.

“The inspection also serves as the basis for further price (or other conditions) negotiations, should it be required.”

George Kleros, Senior Vice President of Advisory Services at JSSI, says a PPI should always be considered a mandatory step in the transaction process, adding that the complexity of the process is often impacted by such factors as the aircraft’s age and operating region. However, the PPI “may have been overlooked during the pandemic as one of the seller’s conditions to expedite the sale.”

Who Pays for any Issues the PPI Identifies?

Typically, the issue of who pays for what following a Pre-Purchase Inspection will be clearly identified in the aircraft purchase agreement, says Kleros.

“Airworthiness squawks - which require corrective action immediately to allow the aircraft to fly - usually default back to the seller. Non-airworthy discrepancies such as exterior/interior cosmetic issues or wear-and-tear could be deferred and deflected back to the buyer,” he explains.

There may be concessions on either side, but “it all depends on the willingness of the seller and buyer to compromise and come to an agreement.”

Joseph Simpson is Maintenance Sales Manager at Central Flying Service and a GLADA member. He says that significant value impact is uncommon if the purchaser has a knowledgeable purchasing agent who can significantly mitigate potential issues during a PPI.

“When your agent is well-versed in the purchasing process and the specific aircraft model you're considering, they can anticipate and address potential concerns before the inspection occurs,” he highlights.

The four major issues that generally impact value the most are damage history, modifications or alterations, equipment discrepancies and corrosion issues.

“Unfortunately, I have seen many different scenarios over my career,” Simpson illustrates, pointing specifically to a transaction involving a Cessna Citation jet, where the buyer had to close before year-end.

This left only 17 days to close with Christmas in the middle and led to a hugely complex, compressed process, involving a “small novel” of issues discovered by the pre-purchase inspectors, Simpson recalls.

Some kind of PPI is essential, though the precise type of due diligence that is conducted depends on several factors, according to Chris Buchholz, Founder and Chief Executive Officer at Crew Chiefs, which provides a range of on-site PPI services.

It could be impacted by how recent the last major inspection was, or where and how the aircraft was kept, maintained, and operated.

“For example, if an aircraft recently came out of a major inspection by a highly reputable MRO provider, it’s typical to see a smaller scope pre-buy inspection – such as an Aircraft Condition Survey, which is essentially a detailed records review and a visual inspection and includes verifying the specs and the functionality of the cabin, galley and lavatory, as well as a visual inspection of the exterior.

“For a bit more depth, some prefer a Level 1 PPI, which would also typically include a Primary Stages borescope inspection, as well as power-on and other checks.”

However, this can go up to a more in-depth Level 2 or 3 PPI, particularly if it has been many months since the last major inspections, with both sides appointing a provider of onsite technical representation to protect their interests.

Regardless of the kind of pre-buy inspection conducted, however, both parties should expect – and budget for – unexpected additional costs, Buchholz says.

“For instance, the seller should expect at least some airworthiness issues to be found. For the buyer there could be, for example, some minor wear and tear issues outside the scope of the agreement that they will want to have addressed before flying on the aircraft,” Buchholz suggests.

“The bottom line is that it’s in all parties’ interests to ensure that proper due diligence is conducted on the aircraft as an integral part of the transaction.”

How Aircraft Pre-Purchase Inspections Benefit Sellers, Too

Steve Rogers, Managing Director of Aradian Aviation Ltd, says the PPI has clear importance for the buyer’s peace of mind, ensuring that the aircraft is in good condition and that there are no corrosion or other issues that could impact the value down the line.

But there are also notable benefits for the seller. For example, “where the seller is concerned, they should be happy that they are selling an aircraft that is not full of the above problems, which could leave them liable to legal liability, if they caused an accident due to their failure to properly maintain the aircraft,’ Rogers explains.

Indeed, Rogers has viewed many aircraft with ‘no damage’, only to find that they did have damage that the owner knew nothing about, as they had not had an inspection when they bought it.

“OK, the damage may well have been properly repaired, so the aircraft is airworthy, but it will impact the value of the aircraft,” he adds.

Additionally, missing logbooks can seriously impact the value. “We have seen people ‘lose’ logbooks, just so damage cannot be viewed in them. There are no lengths that [some unscrupulous] people will not go to at the ‘lower end’ of the market.”

He highlights several examples of discoveries made through PPIs, including the transaction for one Beechcraft King Air C90-1 several years ago, in which the logbooks were in German, which the owner could not read. “It had had quite serious damage to a wing when it hit the hangar door while being towed out of the hangar,” he says. “As it was, the repair was beautifully done and the buyer was not concerned.”

In another incident, he says he dealt with an Embraer Legacy 600 that had serious delamination in one of its windshields that was only just within limits.

“It took us ages to get that sorted and it probably cost somewhere in the region of $300,000.”

If adequate data is shared between parties prior to the PPI, there shouldn’t be much need for price negotiations after the inspection, says Watts. The inspection then serves more as a validation of the information shared between the parties.

In fact, ACC recommends that sellers perform their own PPI prior to the sale, and make this available to buyers, asking the buyer to make offers based upon this inspection and the information shared.

“As a result, sellers get buyers who make bids based on accurate information, which tightens the variance around pricing,” Watts says. “You reduce the risk of someone offering you the best initial price and then, post-inspection, adjusting the price significantly downwards.”

This does mean sellers need to expend some cost in the sales process, “but we find it leads to much tighter/accurate pricing from buyers and limits future price negotiations or surprises. Advanced preparation helps ensure a smooth transaction process for the seller.”

Price adjustment requests typically result from variances from the offered delivery condition, Watts adds. Though not a business aircraft, he shares the example of the sale of a 737 classic freighter ACC was involved in.

The technical specifications provided by the seller stated a certain maximum take-off weight, but during the PPI it was found that the certified maximum take-off weight was less than represented, which “led to a material reduction in the purchase price given the reduced payload/economics this aircraft could then produce for the new owner”.

How an Experienced Broker can Help With the PPI 

Preston Holland, Chief Commercial Officer at FLYING Finance, notes that many cash buyers waived PPIs between 2020 and 2023 due to a lack of supply. This led to unwanted consequences when they realised the aircraft was not as advertised.

“The pre-purchase inspection is required if you're going to finance an aircraft, and the burden of the pre-purchase inspection falls on the buyer. If you're working with a strong broker – like those that are members of IADA or GLADA – they will be able to schedule your pre-purchase inspection with a credible vendor.”

An experienced broker will understand when a buyer can push on certain ‘squawks’ and when they cannot, Holland continues. “We're coming into a time now where this is much more commonplace, because the inventory levels are starting to even out and we're seeing more thoroughness during the pre-purchase period.

“For instance,” he shares, “we had a client that was able to negotiate almost $1m off of their purchase price by hiring a credible broker to represent them on the buy side.”

Allow Plenty of Time for Your PPI

Brian Macbean, Director of Credit & Sales at AOPA Finance reiterates that a PPI is often a condition of financing for many lenders (though even when a PPI isn’t required by the lender or you are paying cash, a thorough PPI is still highly recommended).

He says he always recommends having someone other than the current owner’s mechanic perform the PPI. “This is simply because a fresh set of eyes will notice things that might have already been identified and discussed between the current owner and the mechanic.”

Simpson says the best advice is to give yourself as much time as possible. “The fast-paced push to close [can lead to] the aircraft [being placed in] a facility with availability rather than experience.

“You want to ensure the company you choose has extensive knowledge of your model aircraft. They should have in-house avionics, interior, and paint to assess all aspects of your plane.” Communicating effectively with the project manager is the best way to ensure a smooth process, he says.

Kleros has always been an advocate for the basics: using an experienced broker and competent and qualified facilities for the PPI.

“The devil is in the details (and usually hiding in the maintenance record details specifically). Reviewing all the records and verifying all the repairs accomplished is critical.

“Locating airworthiness documents such as interior burn certifications can make all the difference,” he concludes. “Many readers would be surprised to learn just how many occasions we review aircraft records to discover missing documentation or inaccurate entries.”

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More information from:
ACC Aviation: www.accaviation.com
Aradian Aviation: www.aradian.com
AOPA Finance: https://finance.aopa.org
Central Flying Service: https://central.aero
Crew Chiefs: https://crewchiefs.com
FLYING Finance: https://flyingfinance.com
JSSI: https://jetsupport.com