Gulfstream G650 Sale….Postscript
Never Let the Legal Tail Wag the Acquisition Dog
We are late with this blog post….it should have been aligned with September 2016 happenings in the bizav world. The main reason for the delay was that Aviatrade experienced unexpected headwinds, during the sale process of its client’s exquisite and faultless (QED) Gulfstream G650.
Back in July, Aviatrade received some prompt interest from numerous interested Gulfstream G650 buyers and eventually distilled the likely buyers down to a short list of two. We briefed our client on both and the choice was between a Hong Kong-based, (mainland China), buyer and a major US corporation. Our brief to the client was succinct…the China-based G650 buyer was somewhat typical of the region, (unpredictable and a first-time, high-end, jet buyer with no track record) and the US buyer, (albeit at a slightly lower price)…was experienced with bizjets and is a global brand.
Our client, (an offshore seller), opted for the US G650 buyer.
Aviatrade convened a team on behalf of our client; aviation lawyer, inspector, client intermediaries and yours truly (seller’s consultant). The buyer apparently made similar arrangements, including their very capable broker and the existing members of the buyer’s substantial flight operation (buyer owns numerous jets, all acquired new, directly from the OEM’s).
Above lies a hint as to the reason for our protracted (the polite term) G650 sale process. The first indication that all was not going to proceed as anticipated, (with a blue-chip US buyer of a pre-owned Gulfstream G650), came with the presentation of the letter of intent (LOI) from the buyer’s in-house counsel (hereinafter referred to as IHC).
This LOI was immediately identifiable as a “cut and paste” document…augmented by some head-scratchingly dumb and conflicting terms and conditions.
This LOI, emanating from what Aviatrade believed to be a viable and educated buyer, spelled trouble. We (collectively, after all, it is a team effort !), responded and eventually settled on terms (after a somewhat heated conference call with IHC) that we could live with. A purchase agreement followed and the signatures also…..did I mention that this process took almost two months ?
Apparently, there was also some discussion, within buyer’s camp, as to the technical/mechanical disposition of our client’s G650…this was in spite of the fact that our client’s G650 was less than three years old, with full OEM warranty, Rolls Royce, Honeywell and Plane Parts support programs. …(the analogy….three year old Rolls Royce Wraith with five hundred miles on the clock, always garaged and maintained by the RR dealer…you get the picture).
Thereafter, despite this self-evident manufacturer pedigree, the buyer, (aka, IHC), decided to opt for the most invasive prepurchase inspection possible (known as a level four ARCS). This decision was deemed to be “due diligence” on the part of the buyer. For the casual reader, this inspection amounts to performing open-heart surgery in order to check a patient’s blood pressure.
Other similarly puzzling demands were met and accommodated by Aviatrade’s client, simply because there was nothing to hide and the end result was pretty much predictable…and we are in a somewhat buyers’ market.
Curtailing this incredulous tale somewhat…we come to the delivery and closing scenario;
Prior to delivery, seller was obliged to temporarily exit the US, from Savannah, GA, USA and return, (a customs/excise formality). Seller proposed (for internal reasons) to use Bermuda as the offshore stop, followed by Charleston, SC, USA, for closing. To our complete and utter amazement, IHC demanded that buyer be allowed to perform an additional engine inspection upon US return …”just in case there is a bird strike in Bermuda“…say what ??
Our team quickly resolved this ‘deal breaker’ by switching to Toronto, Canada, as the offshore stop…IHC agreed….Clearly, IHC has never witnessed a flock of Canada geese being sucked into a high-bypass turbofan engine…on any side of the Canadian border !
Aviatrade closed this Gulfstream G650 transaction in mid-November, some six weeks or more after the projected closing date. The buyer’s very capable broker was rarely, if ever, involved, except as messenger. The buyer apparently relied almost exclusively on IHC’s advice.
This was not only a frustrating sale process, but it proved time-consuming and quite costly to Aviatrade’s client. One can only imagine the daily interest on a fifty-plus million US dollar outstanding bank loan.
One last side bar….buyer (the actual buyer, not IHC) had insisted on using a law firm for escrow documentation and funds transfer purposes, as opposed to using a bizjet-specific escrow company. Bizjet escrow companies are bonded and licensed…law firms also. However, bizjet escrow companies perform complex aircraft-sale-related document filings and research, multiple times, every day…law firms, as a rule, do not, and this was quite evident during the closing.
Around the table, in our ‘closing’ conference room, after the very clumsy and disjointed closing call, (attended by yours truly, buyer’s broker and buyer’s flight department VP)…..buyer’s VP turned to his broker and asked, “who hired this escrow agent ?” Yours truly replied, “you did” !
The message….select an effective team for your bizjet sale or acquisition and rely on their expert advice….lawyers (aviation or otherwise) are always part of the team, however, the overall guidance should not come from the tail of the dog, especially if the tail doesn’t know how to wag properly.