A survey of transactional tasks required for AAM implementation - Part 4

What kind of transactional work will be required to implement AAM in the near term?

eIPP Planning/OTA subcontracting: FAA/DOT recently announced the eight regional proposals, spanning 26 states, that have been selected for the eVTOL Integration Pilot Program (eIPP). If you run an existing aviation business in those regions, consider how you can support any resulting Other Transaction Agreement (OTA).

Note a delicate point here: the eIPP Screening Information Request said, "No funds are anticipated to be exchanged under the OTAs; however, if the Government and an OTA holder later agree that either party will provide funding, it would be within the scope of the OTA to make such a modification." At the risk of looking a gift horse in the mouth, if your region has an OTA, you should examine the funding provisions before you sign on.

MOUs, LOIs, Term Sheets and NDAs: Accordingly, "agreements to agree" like Memoranda of Understanding (MOUs), letters of intent (LOIs) or term sheets may figure prominently in early AAM contracting. They are prudent practice even in well-established business paradigms like real estate or M&A. Until the larger AAM business environment starts to gel--for example, after airframes are type certified, and licensed pilots are readily available--"agreements to agree" are probably a safe first step.

As discussed in Part 1 of this series, many of the agreements announced by AAM OEMs in the business press have been MOUs, LOIs, etc. Until the OEMs and their first-tier partners arrive at more defined terms, lower tier participants--e.g., Part 135 operators, or fixed base operators--should probably keep their options open as well.

Acquiring AAM Aircraft/Purchases: No AAM airframes are type certified yet, so commentary on purchase agreements is largely guesswork, but a few general comments are in order.

Given the novelty of eVTOL/powered lift platforms, OEM warranties or service plans may be a sticking point. In theory, electrically powered AAM platforms will require less maintenance than turbine or piston powered aircraft. However, outside the OEMs there is no operating history to estimate maintenance requirements or costs. Note also that there is little basis for assumptions about the useful life or resale value of AAM airframes.

Such AAM purchase risks may be partly mitigated by the return of "bonus depreciation" or "immediate expensing" of new or used business aircraft. The "One Big Beautiful Bill Act" (OBBBA) revived bonus depreciation--i.e., a write-off of up to 100% of the cost of the asset in the first year of use. That may hedge some financial risk. In the alternative, bonus depreciation may permit flexibility or innovation in AAM lease structures.

We'll see. Until then, anyone planning to purchase first-generation AAM platforms should have a healthy appetite for risk, and a plan or two for managing it.

For example, they might think about leasing.

Leasing: Aircraft lease finance is a well-established practice, and lease structures are flexible. Apart from capital leases (rent to own) and operating leases, there are "synthetic" leases (rent to operate, with lessee retaining some tax benefits of ownership). There are also sale and leaseback structures, typically featuring a sale to a third-party or affiliated finance company, with a lease back to the aircraft operator.

Part 135 certification by Joby and Archer suggests that they intend to operate their own branded fleets of aircraft, as if Boeing and Airbus ran airlines with the airplanes they build. Even if that's a viable business model, such operations might also include leasing aircraft to regional Part 135 operators for operation under their 135 certificates.

Other OEMs (e.g., Eve and Beta) seem to be focused on selling aircraft, not transportation. That model will probably hinge on aircraft finance or operating leases. For example, Beta has reportedly provided aircraft leases for launch customers.

In either case, note that dry leases (leases without pilots) are a common feature of the business structures discussed in Part 3A. So, we can expect to see leases driving both operations and finance.

Financing: More specific discussion of AAM finance is also premature, but a few general comments are appropriate.

As discussed above, aviation purchase/lease models are flexible. If someone creditworthy wants an airplane, someone else will probably finance it.

Note also that some of the operating structures discussed in Part 3--particularly, fractional or joint ownership--may also be seen as financing structures. Aircraft timeshares are a form of tenancy in common, a well-known form of real estate finance. Fractional ownership can be seen as a form of crowdfunding. Pre-selling flight time on an airplane isn't just a matter of operations--it's also a debt service strategy.

So, although AAM finance models are still (perhaps literally) up in the air, there are proven tools for structuring them, both from the banks down, and the customers up.

Tax planning: Apart from AAM's potential eligibility for "bonus" depreciation under the OBBBA, AAM-specific taxation is undefined. The IRS has not issued any formal guidance specifically addressing the topic. A November 2022 GAO study recommended AAM-related tax reforms, but so far they haven't happened.

Will AAM be a boon for tax lawyers? Probably not; they've got plenty to do already. But AAM taxation is still a work in progress. In time, the legislative-lobbying complex may take it up further. Stay tuned.

Insurance: AAM insurance is also evolving. There are a handful of insurance companies offering AAM coverage, which is pretty impressive when you consider that only OEM prototypes are flying, there are no passenger operations, and virtually no public safety or accident data.

Until standard practices and policies emerge, potential AAM operators should probably have potential insurance arrangements reviewed by counsel for coverage gaps.

Experienced air carriers with existing insurance portfolios may find securing coverage easier. Current aviation insurers may even develop AAM riders for existing insurance policies. The risks of AAM operations aren't necessarily greater than the risks of operating jet aircraft or helicopters; they're just new and different.

Hiring pilots: Hiring AAM pilots may present special challenges. Part 194 plans for OEM training and certification of the "initial cadre" of powered-lift instructors and pilots. That's something of a paradigm shift. You don't go to Boeing for 737 pilots, or Beechcraft for King Air pilots. AAM will be different.

That may present issues. The employer or source of the pilots can determine not only the type of operation--e.g., private carriage or common carriage--but also how a flight is expensed and taxed. Apart from who gets which deductions, the source of the pilots can also determine who's liable for a mishap.

Moreover, leases are usually considered "dry" (without pilots) or "wet" (with pilots). Arrangements where you kind of, sort of get a pilot with the airplane are sometimes called "damp." They can draw scrutiny from both FAA and IRS officials alike--the FAA because a damp or wet lease may look like unlicensed common carriage, and the IRS because any claimed "private" carriage may be seen as various forms of tax evasion.

If the only source of AAM pilots in the near term will be OEM training programs, there is a risk that AAM leases will be unavoidably damp, unless scrupulous pilot employment documentation shows otherwise.

AAM Infrastructure: As previously discussed, initial AAM operations will rely heavily on existing airports and heliports. That will require joint ventures and other transactions as AAM operators secure fixed base operation (FBO) services.

For example, Archer has announced a partnership with Atlantic Aviation to install electrical charging stations at Atlantic's existing FBOs. Archer also recently acquired the master lease to Hawthorne Airport to support its LA operations as official AAM provider for the 2028 Olympics.

Beta is also providing AAM infrastructure. Apart from selling electrical charging stations, and installing them at over 50 US sites, Beta has demonstrated a shipping container-based vertiport concept at its headquarters in Burlington, Vermont.

So, it looks like building out AAM infrastructure will require transactional work, including design, engineering and construction agreements, and (in some cases) government contracting related to publicly owned airports or heliports.

A caveat: Although the FAA has issued its EB 105A vertiport design criteria, it has also announced plans to issue a unified Vertical Lift Infrastructure Advisory Circular combining heliport and vertiport design guidance by June 30, 2027. New, clean sheet vertiport projects may pause until these technical requirements are better defined.

Conclusion: In summary, AAM transactional practice looks like it may be a big pile of work. To be sure, it will be a cottage industry so long as type certified airframes are trickling out of the factory. As the OEMs hit serial production, things will likely get busy. They may get crazy too, unless we size them up first.

The next and last part of our series will attempt to survey potential compliance and litigation scenarios.

Feel free to move about the cabin. Very shortly we'll begin our final descent.