Aircraft Lender Not Responsible for Customer’s Structuring Strategy -

Most business aircraft purchasers, especially high net worth individuals, rely on advice from their various resources when acquiring such expensive assets. Those resources typically include brokers, OEMs, lawyers, accountants, pilots and, in some cases, their golfing buddies. Aside from the obvious considerations regarding the suitability of a particular aircraft for the customer’s needs, customers often seek advice regarding the related economic considerations including the price, resale value, operational cost, financing terms and pertinent tax implications. Although the tax considerations for U.S. customers could include how to optimize any unique income tax benefits available to aircraft owners, customers often seek advice on how to minimize any related taxes, duties, import or other governmental charges or impositions.

In a recent case, 1st Source Bank v. Neto, a guarantor of an aircraft acquisition loan argued that he should not have to pay the loan balance because he relied in part upon the lender’s expertise and implied advice regarding the non-citizen ownership and tax structure, which resulted in the aircraft’s seizure by the Brazilian government. As discussed below, the lender ultimately prevailed, but the case serves as an important reminder to lenders, lessors and other financing providers that they should generally refrain from providing structural advice to their customers beyond financing.