Due Diligence - Insurance on a CT in Canada

[Jean]

According to my observations and without prejudice,

 

I have been looking at buying 1/3 of partnership on a 2005 CTSW C-ITSA, if you look at my other blog,  which fortunately the negotiations have now ended.  I am now in negotiations with another airplane of the same type but newer and hopefully with fewer surprise snags.  I believe we are also learning that the negotiations and buying process into a partnership is not easy and certainly an eye-opener for me. I find their are a lot of issues that seem to fall on the grey side of things. On the good side, this process has also helped me to discover many new things to watch out for and certainly not only count on trust. Good papers make good friends.

 

You will find some questions below, which would help me with my buying process, might only be for Canadian owners only.

 

Since the seller never supplied any lists of any kind, it would be great if it was mandatory from a potential buyer's perspective and for insurance companies, to get a detailed list of equipment including expiry dates if any, known issues or snags, service bulletins including changes or repairs etc. I believe that initially, a simpler list should exist instead of going through all the logs which I do think should also be done. It would also greatly facilitate the selling process for all, clarify important issues, help to find a better true value and make a better-informed decision before spending money on a pre-purchase inspection. I think much better than the "He said She said" game".

 

Is the seller liable for not divulging any known information? 

 

In some instances, I can only assume some sellers are hopeful a potential buyer would not do his due diligence and act quickly to possibly get as closest to their asking price. In this case, as an example, the selling is asking $32,500.00 for 1/3 of the partnership. Would that mean the value of this airplane for the insurance coverage would then be $32,500.00 x 3 = $97,500.00? 

 

Rather than a partnership percentage of an airplanes true value, this seller seems to be saying he should get more since it's a partnership and known as common practice in the industry. Is this true? 

 

How should an owner determine the value of an airplane, how much to insure it for? 

 

How do insurance companies determine what they would pay on a total loss versus the insured value?

 

For example in this situation, when I asked why so many things were not functional, I then understood that it was partly since they were out of partnership funds and that in this airplane category of advanced ultralight, they are not subject to the same rules and regulations as certified. Can you send me a document on the legal expectations of insurance companies including known issues by owners on an airplane? 

 

Could it be an issue for a claim if there would be an accident?

 

 

 

Thank You for info you can share

 

Be Safe 

 

Jean Lacroix

 

 

 

[Ed Cesnalis]

Claims are paid all the time.  The fear of unrelated deficiencies on your end might be unfounded.

Upon a total loss you get a check for the amount of your hull coverage and the insurance company owns your damaged plane.  If your hull coverage is too high you risk losing the plane for a long time for major repairs and then owning a plane with major repairs afterword.  If your hull coverage isn't too high it might be easy to get a big check and use it to buy a replacement aircraft without the current major repairs.

If your hull coverage is too low you run the risk of having to pay a portion of the costs to get it fixed.

[GrassStripFlyBoy]

A few items to perhaps assist you on some of your questions.  Each CT has an equipment list from factory build as it was delivered, this should be in the "logs" collection of paperwork.  This may be a guide to what was added v/s what airplane came with, so say if someone added instruments, auto pilot, etc - then this may help you discern what could be removed v/s repaired if found inoperable.  Flight Design website has the maintenance manual online, this details inspection frequencies for all items to reconcile what is completed & current, as well as upcoming.

As others have shared, having a shop that has knowledge of Rotax engine, and the CT airframe, is critical to ownership.  Not that these are complicated but you will pay much more for someone to learn on your airplane v/s already having the knowledge.

Questioning if a seller is liable for what they are telling you, understand a buyer could be perfectly honest and good intentions, and after buying the plane a problem develops - these are used items and I view things as transaction being "as is".  If the buyer is withholding info or dishonest, and you sense that, that would be no deal situation to me.  If you want a warranty, feel free to buy a new one for 4X the price.

Value of plane is largely what market demands, USD $ on SW's is $35k for high time / damage history / near term rubber & chute items, to perhaps $70k for one owner / low time / everything just completed nicest on the market.  Based on this a very rough guess on what what you're looking at is $40k USD, and that is assuming no issues with engine besides a minor carb balance or something.  I think I'm being generous here - I don't like the sound a rebuilt engine that is problematic.  Partnerships often appear to drive the divided cost into the higher end simply because you're paying a fraction of the price, and costs / risks are divided up, which may equal a premium for the arrangement.  I've done a 50/50 partnership in the past, I'd only consider a partnership with people I really like / know / trust.  Otherwise join a flying club with much lower buy in, multiple aircraft available, and enjoy "owning" a plane with better availability, but similar costs, to renting.

Insure aircraft initially for what you pay for them / have invested in it, then adjust to market price years forward if major movements. There are several articles on why you don't insure for more (costs more and risk of repairing v/s writing it off in an incident), and you would never insure if for less for obvious reasons.