Buying an Airplane? Better Understand 'Technical Acceptance'

Most jet purchases involve the delivery of a “technical acceptance certificate.” The word “technical” suggests that the aircraft isn’t really accepted, which may be why aviation attorneys dream up alternate (and even more prosaic) names for the same thing, like “post-inspection notice.” An aircraft technical acceptance is more like getting engaged than getting married; the real “acceptance” of the aircraft takes place at closing, when the buyer hands the seller a “delivery receipt,” takes title, and assumes the risks that go with ownership.

Still, delivery of a technical acceptance certificate is an important step and is generally required after completion of the buyer’s pre-purchase (or in the case of a factory-new aircraft, pre-delivery) inspection. If technical acceptance is like an engagement, the prebuy inspection is like a courtship. With the inspection finished, the purchaser has effectively completed its due diligence and must decide whether to proceed with the acquisition. 

That’s where the technical acceptance certificate comes in. It usually offers three choices, and the buyer makes its selection by checking one of three boxes. 

By checking the first box, the buyer can accept the aircraft “as is” and without asking the seller to fix anything or remedy any “discrepancies” between the current state of the aircraft and the condition in which it must be delivered under the purchase agreement. The idea of accepting a business jet after a prebuy inspection without asking for any repairs or corrections will strike veteran buyers as wildly humorous, yet attorneys continue to insist on adding the option. 

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In over 30 years of aircraft transactions, I’ve never seen an aircraft go through a genuine prebuy with no maintenance or paperwork issues and nothing discovered that requires fixing. Even a factory-new aircraft will have many issues that need to be addressed by the manufacturer. Checking the first box sounds less like the finale of a courtship than love at first sight. In sum, unless the acquisition is a wholesale deal with minimal due diligence, sellers should not be surprised or disappointed if the first box isn’t checked.

Rejecting the Aircraft

A second option on the technical acceptance certificate is to reject the aircraft. If the buyer has the right to do this in its sole discretion, the purchase agreement would provide that, should the buyer check the second box, its deposit would be refunded, subject to its payment of any costs it is responsible for under the agreement, such as the bill for the pre-purchase inspection itself. On the other hand, if the buyer needs a reason to reject the aircraft under the agreement and rejects it without one, it will typically forfeit its deposit unless the seller is in default. Valid reasons usually include undisclosed damage history, material corrosion, and repairs that would cost more than a specified amount.

Note that the technical acceptance certificate is usually due within a few business days after the pre-purchase inspection, not at delivery. Buyers who want to reject an aircraft because they believe the seller can’t satisfy all the contractual delivery conditions should think carefully about the best way to deal with this issue, which may not be checking the rejection box on the technical acceptance certificate unless no reason is needed. The seller might argue, for example, that the buyer didn’t give the seller a full chance to satisfy the delivery conditions in the time permitted by the agreement, and that the buyer must be treated as rejecting the aircraft without any right to do so, thereby forfeiting the deposit.

The box most often checked is the third one: the acceptance of the aircraft conditioned on the seller fixing everything required by the purchase agreement. Some attorneys like to leave it at that (though, of course, they may use many more words to say the same thing), but it’s more common for the technical acceptance certificate to contemplate that a list of discrepancies will be attached that the buyer wants (or the contract requires) to be repaired. This raises a question: Can the buyer make its acceptance conditional on the seller fixing anything the buyer dreams up?

Suppose, for example, the wood veneer of the aft bulkhead contains an unsightly scratch. Most jet purchase agreements would regard such a scratch as “cosmetic” and not something the seller must fix. If an agreement requires a buyer to purchase the aircraft as long as the seller complies with the delivery conditions, listing the scratch in the technical acceptance certificate as a condition to the buyer’s obligation to close is mere wishful thinking on the buyer’s part. The seller, smiling broadly, is likely to remind the buyer what its options are under the agreement.

Keeping the Deal Together

On the other hand, if the buyer has the option to reject the aircraft in its sole discretion, the situation can be more complicated. Sellers’ attorneys like to write the technical acceptance form so as to prevent the buyer from even asking the seller to cure something as minor as a scratch on the wood veneer; in that case, technically, the buyer can make its acceptance conditional only on the seller fixing things it’s required to fix. This seems silly since the buyer has the right to walk away from the deal in its sole discretion anyway, just by checking the second box. Why not encourage the buyer to try to keep the deal together? If the scratch is so important, let the buyer ask the seller to fix it; the seller can always refuse. 

Perhaps our imaginary seller’s attorney is trying to preserve a right for her client to argue that the buyer is technically in default by failing to tender a valid technical acceptance certificate within the required time period. If the buyer thinks that’s a possibility, it might be smart to have a conversation about the scratch with the seller before requesting on a technical acceptance certificate that it be fixed. In any case, unlike the scratch, many discrepancies fall into a gray area where it’s not 100 percent clear whether the agreement requires that they be repaired. The best purchase agreements are drafted to try to hold the deal together, not to encourage bickering.

Holding the deal together and getting the buyer to accept the aircraft may involve a price concession or holdback, depending on the discrepancies found and the estimated time to repair them. Sellers sometimes worry that the buyer will use the technical acceptance certificate as an excuse to renegotiate the purchase price by threatening to walk away. It doesn’t follow, though, that the buyer should be required to produce a reason to reject. It’s impossible to write down in a purchase agreement all the reasons why a buyer should be able to reject an aircraft. I remember a buyer rejecting a business jet on a technical acceptance certificate because he discovered a bad smell in the cabin that the seller couldn’t get rid of. Needless to say, the contract didn’t address the cabin’s olfactory quality.  

If a technical acceptance is like getting engaged, signing a delivery receipt is like getting married. There’s nothing technical about that.