The veiled transparency of “off market” preowned business aircraft can open the door to back-to-back transactions. This occurs when the actual buyer or actual seller is masked from the other actual party by an intermediary acting on the behalf of one side or the other.

In a back-to-back, a person without the actual signing authority of the real seller or buyer inserts himself in the middle of a transaction for the purpose of financial remuneration without the usual transparency that occurs when the actual buyer and seller work together with broker representation on both sides. Simply, a person will present an aircraft to one side or the other.

Let’s use the circumstance of the aircraft seller being subjected to this event. In this example, a broker approaches a seller and makes an offer on the aircraft, but the offer is not made in the name of the ultimate buyer; instead, it is in the broker’s company name. Then, once the offer is accepted, the actual buyer sends a deposit to the title company.

Here is where problems can start to occur. The title company receives the deposit sent by the actual buyer and earmarks it to the registration number of the aircraft the broker says it is buying. The aircraft gets contracted between the broker, acting as the buyer, and the real seller.

If things start to go wrong with the deal and the real buyer who sent the deposit backs out of the deal, the seller will tell the title company not to send the deposit back since a dispute exists. The title company then says the person they have contracted with—the broker—is not really the person who remitted the deposit—the actual buyer—and therefore the title company is not obliged to honor the terms of the contract the seller signed with the broker. That is the first they heard about a different buyer!

The seller’s aircraft is sitting on a shop floor in pieces and they have no deal, or they are ready to close and the balance of the funds do not show up, nor do they have any obvious remedy with the buyer. The other thing that is happening is the real seller behind the broker who structures the back-to-back is not getting 100 percent of the dollars being paid by the real buyer. This deception is the real incentive for brokers to pad their own pockets in the back-to-back. Lack of transparency can enable dishonesty.

Good news: the title companies are all getting smart to this. They are not accepting deposits for an aircraft in cases where the remitter does not match the contract parties, without a letter from the real remitter acknowledging the connection between the signatory for the contracting and the deposit sent. This ensures the contract binds the deposit to the deal.

Ask questions and be vigilant when entering into a contract to sell or buy an aircraft. This entire process can work for a buyer in the middle of a back-to-back as well. An aviation attorney can also build safeguards into a contract for the eventuality of a lack of transparency.

Not all back-to-backs are bad or used dishonestly. They can be used for valid reasons, such as facilitating a trade of an aircraft as part of a single transaction being handled by the intermediary. In this example, the back-to-back is transparent and fully justified.