Backgrounder: Hard and Soft Deals

Like boiled eggs, pre-owned airplane deals come in both hard and soft preparations and the difference is really important to understand.

Like a lot of industry lingo, the terms “hard deal” and “soft deal” are both vague and inaccurate. They refer to how easily a buyer can reject an aircraft upon completion of the pre-buy inspection and receive their deposit money back.

Very simply, in a “soft” deal the buyer can generally reject the airplane for any reason they want- including no reason at all whatsoever- and get all of their deposit money back.

In a hard deal, the buyer’s right to reject and receive their deposit money back is limited. Generally, only in the circumstance where the aircraft cannot live up to the delivery conditions agreed upon in the contract (we are setting aside the topic of default for this discussion).

Here’s an example: the aircraft is found to have big corrosion that requires a “major” repair. This would often violate the delivery conditions, so in that event, the buyer would be within their right to reject and collect their deposit money back.

This illustrates that hard deals are generally not 100% hard deals. Usually, the buyer can reject the airplane and get their deposit money back in the event a material defect is found with the plane. There is ample protection in the event the plane is not “as advertised”. So why is the buyer’s right to reject such an aggressively negotiated part of many airplane deals?

The obvious is “cold feet” protection for the buyer. In a soft deal, the buyer really just has a low-cost option to buy the plane which can be exercised after the pre-buy.

But more philosophically, some would argue that the buyer should have the unrestricted right to inspect the plane and decide, based on the findings, if they wish to proceed with the purchase. After all, these are “as is, where is” deals. Once the transaction is closed, the buyer has zero recourse against the seller. All pre-existing conditions are now on the buyer.

But another more subtle advantage is leverage. In a soft deal, the buyer can use the threat of rejection to negotiate borderline discrepancies discovered with the airplane during pre-buy. Some buyers may even abuse this right from time to time- shocking as that may be to hear.

A hard deal evens the playing field somewhat. The buyer can of course argue for whatever they want, but destiny is not solely within their control. The deposit money isn’t getting returned anywhere without the seller’s agreement. And welcome to a protracted and messy dispute if the seller doesn’t agree.

Important note: escrow agents are not going to act as the judge in these disputes. In truth, this risk can even extend to soft deals that appear black and white. Any time you put money in escrow with a signed contract do not assume it will be easy to get back.

Of course, this last example highlights the risk of a hard deal to the buyer: what if the plane is materially messed-up but the seller chooses to be obstinate? The value of the deposit can become secondary to the pain and suffering required to fight for it.

On the subject of pain and suffering: the contract negotiation can be more difficult in a hard deal. Both sides tend to dwell on every nuanced “what-if” scenario they can conjure- however unlikely it is.

Finally, why is there no standard and why aren’t all deals one way or the other? Actually, there is a standard- market conditions. A few years ago, when nobody was buying anything, there were virtually no hard deals. Buyers had 100% of the leverage and demanded terms accordingly. Sellers were happy to oblige.

As the market picked up steam in 2017 however, hard deals became more common again. Scarcity of good equipment meant that sellers could demand better terms.

Today there is a mix. Buy an old piece of junk and you should be able to get a soft deal. Relatively new large cabin jet with pedigree? That seller will generally demand and receive a hard deal.

Viewed in retrospect, most transactions would operate identically regardless of being hard or soft. But if something goes wrong, or if there is a meaningful dispute, the “hardness” of the deal will be a massive factor in the negotiated outcome.