Opinion: Aftermarket M&A Must Consider Regulatory Nuance

For mergers and acquisitions in civil aviation maintenance, the regulations are the fifth dimension. It is a spatial dimension unfamiliar to most business people and, frankly, many attorneys. In the U.S., repair station certificates cannot be transferred; they can, however, be amended.

The first concept, “transfer,” means an asset transfer, not a change in stockholders. The FAA issues a repair station certificate to a “person”—defined for the purposes of all the aviation safety rules to include corporate entities. Some forms of corporate persons do not change when individual “owners” come and go, while others dissolve or become another entity when an individual sells an interest. The nuances are essential to the value of the certificate in the business transaction that involves assets.

The assets required to obtain and maintain a repair station certificate are the housing, facilities, tools, tooling, equipment, materials, technical data and personnel needed to perform the maintenance allowed under the ratings set forth on the certificate. In other words, the value of the repair station certificate depends on the assets it takes to hold a certificate.

When assets are sold, the new owner can apply for either a new or an amended certificate. Obtaining a new certificate entails applying and waiting for the new certificate in a queue with every other applicant.

If all or most of the aviation safety assets will not change after the transfer, the buyer and seller can provide representations to each other that allow continued operations under an amended certificate. The ability to continue operations under the current certificate until the agency can acknowledge the new ownership is often essential to the value of purchasing a repair station’s assets.

As the managing member of an aviation-centric law firm and executive director of a repair station association, I am often confronted with sellers and buyers of repair stations who do not understand the nuances associated with the regulatory dimension. The language of mergers and acquisitions does not mesh well with the aviation safety rules; quality managers and aviation safety inspectors are not lawyers. Often, a transaction is taken as a sale of assets, even when the person holding the certificate does not change, and that can throw a multimillion-dollar transaction into doubt for months.

To avoid the fifth dimension of regulatory uncertainty, it is best to understand the nuances of selling a repair station certificate. There are many legal and economic distinctions between the sale of an asset and the sale of stock or obtaining financial support. The value of a business and any certificates it might hold depends on how those deals are structured in the current regulatory framework.

Sarah MacLeod is managing member of Obadal, Filler, MacLeod & Klein and a founder and executive director of the Aeronautical Repair Station Association. She has advocated for individuals and companies on international aviation safety law, policy, and compliance issues since the 1980s.