What Is Aircraft Escrow and How Does It Work?

You have found the right aircraft. The seller wants a deposit before the inspection. You want to be sure the money is safe and the title is clean. That is the job of escrow. This guide explains what an aircraft escrow agent does, step by step, and what to ask before you wire any money.

What escrow is

Escrow is a neutral third party that holds the money and the documents until both sides have done what the contract says. The buyer does not pay the seller directly. The seller does not hand over the title until the money is in. The escrow agent releases both at the same moment, at closing.

An aircraft is a large purchase that can carry hidden liens and ownership gaps. Escrow is how buyers and sellers protect themselves from each other, and from mistakes.

Why most escrow agents sit in Oklahoma City

In the United States, aircraft ownership records are kept by the Federal Aviation Administration's Civil Aviation Registry in Oklahoma City. Every bill of sale, registration and lien on a US-registered aircraft is filed there. Aircraft title and escrow companies set up next to the registry so they can search records and file documents fast. Companies such as AIC Title Service, Aero-Space Reports, Insured Aircraft Title Service and Wright Brothers Aircraft Title all work from Oklahoma City.

Outside the US, the picture is different. Many national registers record who the aircraft is registered to, not who legally owns it. The UK Civil Aviation Authority states that its register is not proof of ownership. In those countries, a specialist aviation lawyer often holds the funds in a client account and does the legal checks instead of a dedicated escrow company.

The steps, in order

1. Letter of intent. Buyer and seller agree the price, the deposit and the main conditions. The letter names the escrow agent.
2. Deposit. The buyer wires the deposit to the escrow agent, not to the seller or the broker. The contract says when the deposit becomes non-refundable, usually after the buyer accepts the inspection results.
3. Title and lien search. The escrow agent searches the FAA records for the chain of ownership and any liens, mortgages or unreleased security agreements. For larger aircraft, it also checks the International Registry.
4. Purchase agreement. The full contract is signed. It sets out the delivery condition, the delivery place and what happens if either side walks away.
5. Pre-purchase inspection. An independent shop inspects the aircraft and its records. Our guide on aircraft pre-purchase inspections explains what it covers. The seller fixes agreed items, or the price is adjusted.
6. Closing documents. The seller signs an FAA bill of sale. The buyer signs a registration application. Any lender signs a lien release. The escrow agent holds all of it.
7. Closing. The buyer wires the balance. Once the funds are in, the escrow agent files the bill of sale and registration with the FAA, records any new lien for the buyer's lender, and releases the money to the seller. Both sides get confirmation the same day.

The International Registry

Larger aircraft and engines fall under the Cape Town Convention, an international treaty on aircraft finance. Interests in these aircraft are recorded on the International Registry, run by Aviareto in Dublin. The treaty covers airframes that can carry at least eight people including crew, or more than 2,750 kg of goods, helicopters that can carry at least five people, and most jet and turboprop engines. If your aircraft qualifies, the escrow agent registers the sale on the International Registry as well as with the FAA. Both sides need an account there, so set this up early.

What escrow does not do

• It does not inspect the aircraft. That is the pre-purchase inspection.
• It does not give legal or tax advice. Your lawyer and tax adviser do that. Where the aircraft is at closing can change the sales tax you owe, which is why some closings happen in a specific state or even while the aircraft is airborne.
• It does not insure the aircraft. The buyer's cover must start at the moment of closing. Our guide to private jet insurance covers what to arrange.
• It does not decide disputes. If the two sides disagree, the agent holds the money until they settle or a court decides.

Who pays and what it costs

Escrow companies charge a fixed fee for the service, plus small fees for title searches and filings. The purchase agreement says who pays. Often the cost is split, or each side pays its own filings. Compared with the price of the aircraft, the fee is small. The cost of skipping it can be large.

Questions to ask the escrow agent

1. Are you independent of both the buyer and the seller?
2. How are client funds held, and are they kept separate from your own money?
3. What does the title search cover, and will I see the full report?
4. Does this aircraft need an International Registry filing?
5. Who can authorise the release of funds, and in what form?
6. What happens to the deposit if the inspection finds a major problem?
7. How quickly will the FAA records show the new owner?

If you are financing the purchase, involve the lender early. The lender will want its lien recorded at closing. Our aircraft finance hub lists companies that lend on aircraft, and our aviation attorneys hub lists lawyers who handle closings.

Buying or selling? Find aircraft brokers and dealers in our aircraft sales directory.

Sources: FAA Civil Aviation Registry, Cape Town Convention and International Registry (Aviareto), UK Civil Aviation Authority aircraft register, published process guides of aircraft title and escrow companies.