Aircraft Closing Process Explained: Complete Step-by-Step Guide

Overview of the Aircraft Closing Process

Aircraft closing involves transferring ownership and funds simultaneously while ensuring all conditions are met. Key participants include:

• Buyer: You, purchasing the aircraft
• Seller: Current owner selling the aircraft
• Escrow Agent: Neutral third party coordinating closing
• Lender: Your financing company (if financing)
• Title Company: Conducting title search and lien verification
• Attorneys: Representing buyer and/or seller interests
• Pre-Buy Mechanic: Conducting aircraft inspection
• Insurance Broker: Providing required insurance
• FAA: Recording registration and lien documents

The process typically takes 30-60 days from purchase agreement to possession, though pre-approved buyers or cash purchases can close faster.

Phase 1: Purchase Agreement and Contingencies

Drafting the Purchase Agreement

The purchase agreement is your contract with the seller. It should specify:

• Purchase price and payment terms
• Aircraft description: Make, model, serial number, N-number, included equipment
• Deposit amount: Typically $5,000-$25,000 held in escrow
• Contingencies: Conditions allowing you to withdraw
• Closing timeline: Target closing date
• Seller warranties: Clear title, no damage history, airworthy condition
• What's included: Logbooks, manuals, equipment, spare parts
• Dispute resolution: How conflicts will be resolved

Critical Contingencies to Include

• Satisfactory Pre-Buy Inspection: Ability to withdraw if inspection reveals significant issues
• Financing Approval: Right to terminate if you can't secure financing
• Clear Title: Contingent on title search showing no unexpected liens or claims
• Insurance Availability: Ability to obtain insurance at acceptable rates
• Logbook Review: Approval of complete logbooks and maintenance history

Never waive contingencies to make your offer more attractive. These protections are essential for limiting risk.

Submitting Deposit

Your deposit (earnest money) demonstrates serious intent and secures the aircraft during due diligence. The deposit should:

• Be held by neutral escrow agent, not given directly to seller
• Be refundable if contingencies aren't satisfied
• Be clearly documented with escrow instructions
• Be applied to purchase price at closing

Typical deposits are 5-10% of purchase price but are negotiable.

Phase 2: Due Diligence Period

Pre-Buy Inspection

Schedule your pre-buy inspection immediately after purchase agreement. This typically involves:

• Timeline: 7-14 days to schedule and complete
• Location: Usually at seller's location or nearby qualified shop
• Scope: Comprehensive airframe, engine, and systems inspection
• Cost: $1,500-$5,000 depending on aircraft complexity
• Report: Detailed findings with photos and repair estimates

Use your own independent mechanic experienced with the aircraft type. Never use the seller's mechanic. Read our complete pre-buy inspection guide.

Logbook Review

Thoroughly review all logbooks with your mechanic:

• Verify completeness and continuous history
• Confirm airworthiness directive compliance
• Check for damage history
• Review maintenance quality and frequency
• Verify times match advertised hours

Missing logbooks or major discrepancies are deal-breakers for most buyers and lenders. Learn how to read aircraft logbooks effectively.

Title Search and Lien Check

Order professional title search to verify:

• Seller is registered owner
• No undisclosed liens exist
• Chain of title is clean
• No judgments or legal claims

Title searches cost $300-$500 and take 3-7 days. Your lender will require this. Read about aircraft lien searches and title verification.

Financing Finalization

If financing, work with your lender to finalize approval:

• Submit completed application with all documents
• Provide pre-buy inspection results
• Submit aircraft appraisal (lender usually orders)
• Obtain final approval and commitment letter
• Review and sign loan documents

This typically takes 2-4 weeks for financed purchases. Get pre-approved before shopping to expedite this phase.

Insurance Procurement

Secure aircraft insurance before closing:

• Shop multiple aviation insurance brokers
• Obtain quotes with required coverage amounts
• Provide aircraft details and your pilot qualifications
• Bind coverage effective at closing
• Provide proof of insurance to lender and escrow

Expect first-year premiums of $1,500-$5,000+ depending on aircraft value, your experience, and coverage. Lenders require hull and liability coverage with them named as loss payee.

Phase 3: Negotiating Inspection Results

If Pre-Buy Is Clean

If inspection reveals only minor squawks typical for the aircraft's age:

• Proceed to closing as planned
• Factor minor items into your budget
• Maintain good relationship with seller

If Issues Are Found

For significant problems discovered:

• Request Repairs: Ask seller to fix issues before closing, ideally by reputable shop with documentation
• Negotiate Price Reduction: Request reduction equal to repair costs plus margin for your hassle
• Split Costs: Compromise where seller pays some and you accept reduced price
• Accept As-Is: For minor issues you're comfortable handling post-purchase
• Walk Away: Exercise inspection contingency if problems are too severe

Document all agreed repairs or credits in writing as amendments to purchase agreement.

Phase 4: Preparing for Closing

Opening Escrow

Escrow agents coordinate the closing process:

• Receive and hold purchase funds
• Collect all required documents
• Coordinate with lender, attorneys, and title company
• Ensure all contingencies are satisfied
• Prepare closing documents
• File FAA registration and lien documents
• Disburse funds to seller (after lien payoffs)

Escrow fees typically range $500-$2,000 and are often split between buyer and seller.

Gathering Required Documents

Buyer provides:

• Completed AC Form 8050-1 (Aircraft Registration Application)
• Government-issued photo ID
• Proof of insurance
• Down payment funds (cashier's check or wire transfer)
• Closing cost funds
• Financing documents (if applicable)
• LLC or entity formation documents (if applicable)

Seller provides:

• Completed AC Form 8050-2 (Bill of Sale)
• Current aircraft registration certificate
• All aircraft logbooks
• Pilot Operating Handbook and supplements
• Weight and balance data
• Maintenance records and manuals
• Equipment list
• Keys and access codes

Lien Payoffs

If seller has existing liens:

• Escrow obtains payoff quotes from all lienholders
• Payoffs are calculated to closing date
• Funds are wired directly to lienholders at closing
• Lienholders provide AC Form 8050-41 (Release of Lien)
• Releases are filed with FAA

Final Walk-Through

Before closing, conduct final walk-through:

• Verify aircraft condition unchanged since pre-buy
• Confirm agreed repairs were completed properly
• Test all systems and equipment
• Ensure all included items are present
• Check for any new damage

If significant changes occurred, renegotiate or exercise contingencies.

Phase 5: Closing Day

Reviewing Closing Documents

At closing, you'll review and sign:

• Bill of Sale (AC Form 8050-2): Transferring ownership from seller to buyer
• Aircraft Registration Application (AC Form 8050-1): Your registration with FAA
• Closing Statement: Detailing all funds, fees, and distributions
• Lien Documents: If financing, your lender's security agreement
• Escrow Instructions: Authorizing fund disbursement
• Transfer Documents: Any additional state or local requirements

Read everything carefully. Don't sign documents you don't understand. Your attorney should review all documents before signing.

Funding the Purchase

For Financed Purchases:

• Your down payment funds are wired to escrow
• Lender wires loan amount to escrow
• Escrow verifies all funds received

For Cash Purchases:

• Wire full purchase amount to escrow
• Or provide cashier's check (verify escrow accepts)
• Escrow confirms receipt before proceeding

Document Filing

Escrow agent files documents with FAA:

• Bill of sale transferring ownership
• Your registration application
• Lender's lien (if financing)
• Lien releases for paid-off liens

FAA issues temporary registration (pink copy) immediately, valid for 120 days. Permanent registration arrives by mail in 4-8 weeks.

Fund Disbursement

After proper documents are filed, escrow disburses funds:

• Pays off existing liens directly to lienholders
• Pays closing costs (title search, escrow fees, etc.)
• Wires remaining proceeds to seller

Seller typically receives funds within 1-2 business days of closing.

Phase 6: Taking Possession

Final Acceptance

After closing is complete:

• Conduct final inspection of aircraft
• Receive all keys, codes, and access cards
• Collect all logbooks and documents
• Verify equipment list against actual equipment
• Sign acceptance acknowledging receipt

Flying Your Aircraft Home

To legally fly your new aircraft:

• Carry temporary registration (pink copy) in aircraft
• Carry proof of insurance
• Verify airworthiness certificate is current
• Ensure you have appropriate endorsements for the aircraft
• Consider hiring a ferry pilot if you're not comfortable or qualified

Many buyers complete checkout training with a CFI before the first solo flight in their new aircraft.

Post-Closing Tasks

After taking possession:

• Update Records: Inform insurance and lender of successful closing
• Join Type Clubs: Connect with other owners of your aircraft model
• Find Maintenance: Establish relationship with local mechanic or shop
• Review Systems: Familiarize yourself thoroughly with aircraft systems
• Plan Training: Schedule checkout and proficiency training
• Budget for Costs: Plan for upcoming annual, upgrades, operations

Closing Costs Breakdown

Expect to pay these costs in addition to purchase price:

• Pre-Buy Inspection: $1,500-$5,000
• Title Search: $300-$500
• Escrow Fees: $500-$2,000
• Attorney Fees: $500-$1,500
• FAA Registration: $5
• Lender Fees: 1-3% of loan amount (origination, processing, underwriting)
• Appraisal: $1,000-$2,000 (usually required by lender)
• First Year Insurance: $1,500-$5,000+
• State Sales Tax: Varies by state; some states charge 5-10% of purchase price

Total closing costs typically range from 3-7% of purchase price, excluding down payment and sales tax.

Common Closing Problems and Solutions

Financing Falls Through

If your lender denies final approval:

• Use financing contingency to withdraw without penalty
• Attempt to secure alternative financing quickly
• Negotiate extension with seller to resolve issues
• Consider increasing down payment if that helps approval

Title Problems Discovered

For unexpected liens or title defects:

• Require seller to clear title before closing
• Delay closing until issues are resolved
• Walk away using title contingency if seller can't or won't fix
• Never waive title contingencies or close with unresolved issues

Seller Refuses to Make Agreed Repairs

If seller doesn't complete agreed-upon repairs:

• Demand completion before closing
• Request escrow hold funds equal to repair costs
• Renegotiate price reduction instead of repairs
• Exercise contingencies and terminate if seller won't comply

Disagreements Over Included Equipment

For disputes about what conveys with aircraft:

• Refer to purchase agreement equipment list
• Require seller to provide all listed items
• Document everything during walk-through
• Don't close if significant items are missing

Tips for Smooth Closing

• Use professionals: Aviation attorney and experienced escrow agent are worth the cost
• Communicate clearly: Maintain open communication with all parties
• Meet deadlines: Respond promptly to requests for information or documents
• Read everything: Never sign documents you haven't reviewed thoroughly
• Ask questions: Clarify anything you don't understand
• Stay flexible: Delays happen; build buffer time into plans
• Maintain contingencies: Don't waive protections to appear more attractive
• Verify before wiring: Confirm all wire instructions verbally to prevent fraud