By Frédéric Meyer – Meyer Avocats Genève

Appointing an escrow agent is a widespread practice in pre-owned business aircraft sales. This brings several benefits to the transaction, i.a. a specialised, independent and trusted agent verifies and files the aircraft transfer and/or de-registration documents with the civil aviation authorities at the closing of the sale (when the aircraft is registered or will be re-registered in the country of the escrow agent). It also guarantees, through the involvement of an intermediary, a certain degree of simultaneity in the closing exchange (purchase price versus title transfer documents), thereby limiting the risk that a party finds itself, to the detriment of the other, holder of both the purchase price and title to the aircraft. Finally, this simultaneity helps ascertaining with certainty the exact time of the transfer of title. This reduces the risk that a creditor of the seller claims against the aircraft at a point when the buyer has already transferred the purchase price while the title transfer (which may require complex formalities) has not yet been completed or perfected.

With the internationalisation of transactions, the last two benefits are gaining importance, while the first is becoming secondary. Indeed, over the past two decades, it has become frequent to see escrow agents involved in transactions unrelated to the civil aviation authorities of their country. For example, parties to the sale of an aircraft registered in Europe and intended to be re-registered in Bermuda may well appoint an escrow agent based in Oklahoma (which is the location of the Aircraft Registration Branch of the US Federal Aviation Administration). In such scenarios, no contacts or filings with the civil aviation authorities are however expected from the escrow agent. Hence, it is primarily for its role as a coordinator, responsible for the simultaneous exchanges, that the parties appoint an escrow agent.

Role of the escrow agent in the transaction

In short, prior to the time of closing, the escrow agent receives and keeps the purchase price and the title transfer documents (bill of sale, assignment of warranties, etc.) and when applicable, de-registration forms signed but not dated, on behalf of the sending party. As soon as all conditions precedent to closing are met, the parties request the escrow agent to close the transaction. The closing is done by dating and releasing to the buyer the transfer documents and transferring the purchase price to the seller, as well as filing de-registration and title transfer documents with the applicable registry (when the aircraft is registered in the country of the escrow agent). These exchanges and filings coincide with the transfer of title and risks to the aircraft.

©Mat Douhaire

Closing Call

Frequently, the parties to a purchase agreement provide for the closing of the sale to take place on a conference call. During the closing call, their representatives confirm to the escrow agent that the conditions precedent to the sale are met and instruct him to proceed with the exchange. On receipt of such instructions, the escrow agent performs the closing actions. Once such actions are completed, the escrow agent confirms to the parties either orally (if the parties remain on the call after issuance of the closing instructions) or by email (if the parties hung up) that the closing has occurred. Then, the escrow agent sends via e-mail copy of the dated transfer documents to the buyer and confirmation of the transfer of funds (Fed wire or Swift confirmation) to the seller.

All industry players have attended such conference calls, involving the escrow agent, lawyers, brokers, operators and/or bankers, based in different time zones, with everyone trying to follow the discussion and to be heard, in an often sympathetic but sometimes tense or even conflicting atmosphere. It is not uncommon, especially when the parties are poorly prepared, that these sessions turn into chaos. For example, it happens that a party questions at the very last moment the achievement of a condition precedent to the surprise of the other participants; or several participants, often unidentified and in a sometimes surprising sound environment, start speaking out at the same time, using confusing or even contradictory language.

The foregoing shows that the oral and instant nature of a closing by telephone raises several problems the consequences of which can be serious both for the parties and the escrow agent:

  • First, it is very difficult, if not impossible, to verify the identity, as well as the existence and scope of the representation power, of each participant. The details of the closing conference call are generally shared via email on a large scale by the sending party, with no possibility to control their use and final destination. If technical tools exist to limit access to the conference to authorised representatives of the parties only, experience shows that they are almost never used in practice. Given the risks and disastrous consequences that a closing ordered by an unauthorised – possibly ill-intentioned – person can generate, we are regularly surprised by the few precautions taken by industry players in this regard.
  • Then, participants in a closing call are never immune to one of them raising a last-minute objection; for example, doubts as to the technical condition of the aircraft or as to the fulfilment of a condition precedent. Admittedly, it is easy in such cases to interrupt the process and convene a new conference call when the objection is removed. Nevertheless, if the point is raised when the instructions have already been given and the escrow agent has already initiated the closing process, which cannot be excluded in a context where orality and immediacy prevail, the situation quickly becomes problematic. Should the escrow agent continue with the closing process, at the risk of being liable for any damage caused to the party having raised the objection? Conversely, should he/she interrupt the process, at the risk of being liable for any damage caused to the party whose instructions were already carried out?
  • In the same vein, when a dispute arises subsequently, evidencing the closing sequence and in particular the issuance of closing instructions during the call may be difficult (for example if a party claims that the escrow agent sent the funds without being duly authorised to do so). Again, the oral nature of the closing call is in question here, as it is difficult to prove after the fact that a disputed instruction was or not given by an authorised representative. A solution could be to record the conversation but this in turn raises other legal problems in many jurisdictions (privacy protection, admissibility/legality of evidence, etc.). Hence, the difficulty to demonstrate a posteriori the content of a conversation represents an important risk factor for the stakeholders involved in the deal, especially the escrow agent.
  • Bringing together all stakeholders in a single conference call can also pose confidentiality problems. Representatives of the buyer, for example, are not expected to know how the purchase price is to be allocated between the seller’s creditors. However, discussions on this subject – and other confidential information – can easily arise during a closing call. Likewise, in the case of back-to-back transactions –even transparent –, the registered owner of the aircraft is not supposed (and often does not wish) to come into direct contact with the final buyer and reciprocally. A single closing call for the successive transactions is not possible as it presupposes the existence of a contractual relationship involving all parties, which in most cases is not an option. Neither is holding two successive closing calls as the chain of transfers has to occur (nearly) simultaneously.
  • Finally, as people are often based in different time zones, having all of them participate in a single conference call poses obvious planning problems. When the escrow agent and his/her bank are in Oklahoma, the aircraft is registered in Dubai and intended to be re-registered in Aruba, the seller’s representatives are in Hong Kong and those of the buyer are in Switzerland, determining a suitable time for all persons concerned is a real challenge. All the more so if the discussion lasts longer than expected and goes beyond the opening hours of the relevant civil aviation authorities or of the bank of the escrow agent. In such circumstances, the completion of the closing simply risks being postponed until the following day. To complicate things even further, it is good practice to integrate de-registration of the aircraft from the seller’s registry in the closing process. Since, in most countries, the de-registration process spans over several hours or even days, it is almost impossible to predict a closing window that coincides with the time of de-registration.
©Mat Douhaire

The special issue of de-registration

An aircraft cannot be validly registered in more than one State, but its registration may be transferred from one State to another”. This provision of the Chicago Convention on International Civil Aviation (Article 18) is reflected in each national law. It is expressed in the requirement for anyone intending to register an aircraft in a member State to the Convention to demonstrate that the aircraft is not already registered in another state. Generally, the evidence takes the form of a de-registration certificate issued by the registry of the state in which the aircraft was last registered.

Hence, in all aircraft sales involving a change of country of registration, it is essential for the buyer that the seller removes the aircraft from its current registry and that such removal be evidenced by an appropriate certificate. It is good practice from the buyer’s point of view that this removal takes place before closing (or as the opening act of a closing) for two reasons. First, the buyer does not want to run the risk that the aircraft remain registered on the seller’s registry after closing. Indeed, once the purchase price has been released to the seller, the buyer no longer has leverage to force a negligent or malicious seller (or merely a slow civil aviation authority) to finalise the de-registration process. Secondly, the fact that the aircraft is no longer registered at the time of closing may foreclose the risk of interference by the law of the country of registration on the transfer of ownership (certain registrations may have a constitutive effect or generate the application of certain rules specific to the state of registry).

This legitimate interest of the buyer conflicts with that of the seller. Seller has no reason to file a de-registration request without certainty that the closing will take place as soon as the process is completed. If the closing fails, it may be very problematic for seller to own an aircraft that is not registered anymore. As explained above, the scheduling of a closing conference call does not guarantee in any way that the sale will close on the proposed date and time. Hence, the seller will be reluctant to initiate the de-registration procedure before the call has started and the parties have confirmed that the conditions precedent are met. Concurrently, the time required by most civil aviation authorities to complete the de-registration process makes it unrealistic to assume de-registration can be initiated and finalised during a closing conference call.


So, either the buyer accepts the risk of de-registration being done after the closing call, or the seller accepts the risk of having the aircraft de-registered prior to the closing call. Put differently, closing calls do generally not allow the parties’ interests to be reconciled with regard to the time of de-registration.

The above considerations also apply to the discharge of aircraft mortgages. Financiers will generally refuse to remove their mortgage without having the certainty that their loan (repaid by means of the purchase price) will be reimbursed – a certainty that the prospect of a closing by conference call does not bring. On the other side, the purchaser of a mortgaged aircraft will not accept the purchase price (or part of it) to be paid to the seller or his/her financier if it has no assurance of simultaneous title transfer, which requires the prior discharge of any mortgage.

Silent Closing

Facing the difficulties and risks inherent to closing conference calls, we have observed over the past years a tendency for industry players to opt for a silent closing mechanism.

In brief, the process is similar to that of closing by telephone, except that the parties send, generally by e-mail, written irrevocable closing instruction to the escrow agent once they consider that all conditions precedent are met from either side. The instructions are issued conditional only upon receipt by the escrow agent of (i) similar instructions from the other party and (ii) copy of the de-registration confirmation issued by the seller’s registry (which usually contains a confirmation that no mortgage is registered against the aircraft). Once concordant instructions from all parties have been received and the escrow agent has confirmed he/she will execute them, the seller can initiate the de-registration process with the reasonable assurance that, upon receipt of a copy of de-registration confirmation, the escrow agent will automatically close and inform the parties when the closing has taken place, by sending dated transfer documents and proof of payment.

This “documentary” approach has several advantages:

  • It is simple for the escrow agent to identify and verify the authority of the person from whom the closing instructions originate. If necessary, to limit the risk of hacking, the escrow agent can call the signatory on a telephone number, which has been given separately in advance.
  • The risk of last minute surprises is limited. The written instructions being deemed irrevocable, they are only sent once the party’s representative has checked and excluded any doubt as to the fulfilment of the conditions precedent. Obviously, the parties coordinate to send these instructions simultaneously at a time when the closing can take place immediately.
  • In the event of a subsequent dispute, instructions being in writing, the escrow agent can easily show evidence that he/she has been sent to him/her by the authorised representatives of the parties.
  • In the unlikely scenario where the closing must be interrupted (for example following damage to the aircraft before the closing has taken place, or unexpected intervention of a creditor of the seller), the parties are not in a situation different from that which would be theirs in a closing call.
  • Confidentiality problems do not arise. The parties do not come into direct contact during the closing. The escrow agent takes care of closing on the basis of the written instructions he/she has received, without involvement of the parties. The same applies to simultaneity issues, including in case of back-to-back sales: the escrow agent secures the chronology and the simultaneity of the exchanges and informs the relevant parties once the (double) closing has taken place.
  • There is no need to determine a time slot, which takes into account the opening hours of civil aviation authorities and banks and which is suitable for the representatives of all parties around the world. The closing takes place as soon as the confirmation of de-registration is available. If this document is issued and sent to the escrow agent outside his/her office hours, the closing takes place as soon as he/she arrives at the office – in any case, earlier than if the closing was by telephone. If the de-registration confirmation is issued during the office hours of the escrow agent, the closing is almost simultaneous.
  • Since the de-registration confirmation triggers the closing automatically, the seller can initiate the de-registration process without risking to end up owning a de-registered aircraft should the closing fail. The question of which party bears the risk of de-registration before or after the closing no longer exists. Even financiers, usually reluctant to discharge their mortgage before receiving the funds (or conversely, to send the funds before being able to register their mortgage) show interest in the method, probably reassured by its “documentary” and automatic nature. They agree to discharge their mortgage – which is often a prerequisite to, or concomitant with, de-registration – before the funds are released from escrow, hence, before their loan is repaid. This is made possible by the escrow agent’s guarantee to automatically execute the closing instructions upon receipt of confirmation of the mortgage cancellation and aircraft de-registration.
©Mat Douhaire

For the past twenty years, business aviation has experienced spectacular developments in several regions of the world, in particular in emerging countries that were previously not so present on the market. This has resulted in a growing internationalisation of transactions, involving a multitude of stakeholders (buyers, sellers, lawyers, escrow agents, operators, brokers, banks, civil aviation authorities, etc.), bringing further geographical and time zone diversity in the transactions. The days when a party – usually the most seasoned – was able to impose its demands on the other are over. The market has become mature and each player is now aware of the risks inherent to a poorly crafted or unfair closing process. Hence, the need of the parties for a balanced and secured process, independent of the location of its stakeholders, has become essential.

In this context, the growing practice of silent closings should be welcome and we would not be surprised to see it take precedence over the one – approximate and archaic – of closing calls. Its formal and automatic nature also appears more compatible with current and upcoming technological developments (electronic closing rooms, blockchain, etc.), which leads us to predict that the practice of closing by telephone is likely to become obsolete in a near future.


Frédéric Meyer is a lawyer based in Geneva, Switzerland, and the holder of a LL.M. Degree of the Institute of Air and Space Law of McGill University. Founding partner of Meyer Avocats, a law firm specialized in aviation, he has been working exclusively in the field of aircraft sales, purchases and financings for more than two decades.